Simplification is the key - Centre for Policy Studies

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depending upon age at the time that the annuity was purchased; it is (approximately) equal to the original capital sum divided by life expectancy at that time. The proportion of income subject to tax under a PLA therefore depends on the annuitant's age at purchase. (iii) Whilst not “an annuity”, income derived from capital held in an ISA is taxfree because the original contributions to the ISA were made from post-tax income. For example, the ISA could be invested in a corporate bond fund yielding (tax-free) income of 4% per annum. 83
APPENDIX IV TAX RELIEF MECHANICS 170 Tax relief for pension saving is delivered in one of three different ways. 1. Tax relief at source Relief at source typically applies to contributions made to personal pensions. The saver contributes £80 into his personal pension, which then receives basic rate of income tax (£20) from HMRC, so £100 ends up in the pension pot. Higher rate taxpayers then claims £20 via their Self Assessment tax return (or through a PAYE coding adjustment), so the net cost is £80 - £20 = £60. 2. Relief through net pay arrangements, via the payroll Employee contributions to occupational pension schemes are normally given tax relief via net pay arrangements. The employer deducts an employee’s pension contributions from their income before operating Pay As You Earn (PAYE) to collect income tax. This means that PAYE is operated on their net pay. This automatically delivers tax relief at an individual’s marginal rate of tax. 3. Via a claim on the tax return Some pension contributions are not tax-relieved at all on payment. The saver pays the full amount of their pension contribution from taxed income and claims back the tax relief from HMRC. Thus a saver making a £100 contribution into an AVC scheme from post-tax income would subsequently claim back £20 (basic rate taxpayer) or £40 (higher rate taxpayer) from HMRC, for a net cost of £80 or £60, respectively. 170 HMT & HMRC: Implementing the restriction of pensions tax relief, December 2009. 84
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Simplification is the key Stimulati
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THE AUTHOR Michael Johnson trained
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A note concerning data Finding a co
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These proposals depend upon having
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SUMMARY The UK’s long-term savin
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any annuitisation requirement, prov
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Thus, had pension savings products
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INTRODUCTION There has been a flood
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PART ONE: THE LONG-TERM SAVINGS LAN
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Japan’s savings ratio was once th
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scheme contribution rates are lower
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Table 1: Funded pension scheme asse
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1.9 The international perspective A
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Table 4: ISA savers’ income distr
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Table 6: The complexity of the tax
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Figure 4: Income options upon retir
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savings by delivering a framework t
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Figure 7: When non-savers might sta
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There are other aspects to consider
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3. THE EMPLOYERS’ PERSPECTIVE 3.1
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When employees with DC funds retire
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More specifically, employers are no
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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 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 112 and 113: in cash terms, i.e. fixed at £770
Page 114: The UK savings industry is barely t
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Simplification is the key - Centre for Policy Studies

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