Simplification is the key - Centre for Policy Studies

More documents

Recommendations

Info

in cash terms, i.e. fixed at £770 a week, £40,040 p.a. (the level of the UEL for 2008- 09) and it will remain at that level, leading to an erosion of earnings-related S2P accrual. By 2030, S2P will become a flat-rate top-up to the Basic State Pension. 401k plan 401k plans are the American form of stakeholder-type defined contribution retirement savings scheme. They allow earnings to be “deferred” and put into an Individual Retirement Account (IRA) and savings may be drawn down from age 59.5 onwards (or on earlier retirement) and are taxable as income on withdrawal. The plans are open to all companies and the self-employed, but not government bodies. Over 77% of eligible workers participate and 95% of plans involved some form of company contribution. The average 401k participant saves between 5% and 7% of pre-tax salary. The key features of 401k schemes are: Draw down is allowed from age 59.5 or upon retirement if earlier. There are no limits on the rate of drawdown but by age 70.5 an annuity must be taken or a percentage of funds (based on life expectancy) must be withdrawn each year. 10% penalties are applied to withdrawals before 59.5. Company contributions at the discretion of the employer but are limited to $15,000 (2006). Employers offer 401k plans as a way of attracting employees. The over 50’s may make additional catch up contributions of $5,000 p.a. (pretax) and can make additional contributions on an after-tax basis. Pre-tax contributions are taxed on withdrawal. Equality amongst executives and other staff. If executives want good schemes for themselves, they have to offer similar terms to all employees. For example, executives’ contributions cannot be more that 2% above the average percentage contribution of low paid workers. Most schemes are set up on the basis that employees can choose from a selection of mutual funds. The trustees determine investment strategy in respect of schemes set up under trustee arrangements. If the participant dies before distribution commences, the benefits are distributed to the beneficiary either over a five year period or over the expected lifetime of the beneficiary (depending on the plan rules). The beneficiary pays tax on the withdrawals. 97
THE CENTRE FOR POLICY STUDIES The Centre for Policy Studies is one of Britain’s best-known and most respected think tanks. Independent from all political parties and pressure groups, it consistently advocates a distinctive case for smaller, less intrusive government, with greater freedom and responsibility for individuals, families, business and the voluntary sector. Through our Associate Membership scheme, we welcome supporters who take an interest in our work. Associate Membership is available for £100 a year (or £90 a year if paid by bankers’ order). Becoming an Associate will entitle you to: • all CPS publications produced in a 12-month period • invitations to lectures and conferences • advance notice by e-mail of our publications, briefing papers and invitations to special events For more details, please write or telephone to: The Secretary Centre for Policy Studies 57 Tufton Street, London SW1P 3QL Tel: 020 7222 4488 Fax: 020 7222 4388 e-mail: mail@cps.org.uk Website: www.cps.org.uk
Page 1 and 2:
Simplification is the key Stimulati
Page 3 and 4:
THE AUTHOR Michael Johnson trained
Page 5 and 6:
A note concerning data Finding a co
Page 7 and 8:
These proposals depend upon having
Page 9 and 10:
SUMMARY The UK’s long-term savin
Page 11 and 12:
any annuitisation requirement, prov
Page 13 and 14:
Thus, had pension savings products
Page 16 and 17:
INTRODUCTION There has been a flood
Page 18 and 19:
PART ONE: THE LONG-TERM SAVINGS LAN
Page 20 and 21:
Japan’s savings ratio was once th
Page 22 and 23:
scheme contribution rates are lower
Page 24 and 25:
Table 1: Funded pension scheme asse
Page 26 and 27:
1.9 The international perspective A
Page 28 and 29:
Table 4: ISA savers’ income distr
Page 30 and 31:
Table 6: The complexity of the tax
Page 32 and 33:
Figure 4: Income options upon retir
Page 34 and 35:
savings by delivering a framework t
Page 36 and 37:
Figure 7: When non-savers might sta
Page 38 and 39:
There are other aspects to consider
Page 40 and 41:
3. THE EMPLOYERS’ PERSPECTIVE 3.1
Page 42 and 43:
When employees with DC funds retire
Page 44 and 45:
More specifically, employers are no
Page 46 and 47:
Both businesses do have important c
Page 48 and 49:
year. 91 Clearly, there are conside
Page 50 and 51:
elderly and the wealthy, not least
Page 52 and 53:
5. THE TREASURY’S PERSPECTIVE 5.1
Page 54 and 55:
Whilst the UK’s NRR for the mean
Page 56 and 57:
Currently, reducing pensioner pover
Page 58 and 59:
Table 13: Net cost of tax relief un
Page 60 and 61:
TEE would be hugely attractive to p
Page 62 and 63: 5.6 Tax treatment: international pe
Page 64 and 65: PART II THE PROPOSALS AND THEIR IMP
Page 66 and 67: Proposal 6: post-retirement, amend
Page 68 and 69: 7. TAX SIMPLIFICATION: SOME OPTIONS
Page 70 and 71: 8. THE IMPLICATIONS FOR SAVERS Impl
Page 72 and 73: The higher rate taxpayers’ perspe
Page 74 and 75: segregated from any employer-sponso
Page 76 and 77: epresent a further step down the pa
Page 78 and 79: 10. THE IMPLICATIONS FOR THE PENSIO
Page 80 and 81: Such principles would have to ensur
Page 82 and 83: Figure 13: The cost of pension savi
Page 84 and 85: pool of underlying pension assets (
Page 86 and 87: hardship” facility, whereby cash
Page 88 and 89: occupational pension scheme benefit
Page 90 and 91: CONCLUSION We would save more, for
Page 92 and 93: ACKNOWLEDGEMENTS This paper was cat
Page 94 and 95: APPENDIX I Summary of proposals fro
Page 96 and 97: APPENDIX II Value of assets in priv
Page 98 and 99: depending upon age at the time that
Page 100 and 101: APPENDIX V PRE-RETIREMENT ACCESS TO
Page 102 and 103: APPENDIX VII FINANCIAL PLANNING TOO
Page 104 and 105: APPENDIX VIII THE MODEL 173 The
Page 106 and 107: GLOSSARY Alternatively Secured Pens
Page 108 and 109: pensions and earnings, but excludes
Page 110 and 111: those with earnings above £4,940 b
Page 114: The UK savings industry is barely t
show all

Simplification is the key - Centre for Policy Studies

Create successful ePaper yourself

Delete template?

Save as template?