The current tax treatment of pension saving - known as Exempt,
Exempt, Taxed (EET) - has many attractive features and we should be
cautious of radically overhauling it without good reason.
- An alternative, ISA-like TEE (Tax-Exempt-Exempt) tax treatment
would suffer from some drawbacks compared to EET
- There are other areas of pension tax treatment that are better
prospects for reform. The ability to take a 25% tax-free lump sum
and the exemption of employer pension contributions from National
Insurance contributions are genuinely large subsidies to pension
saving compared to a pure EET benchmark. If the government is
looking to reduce or redirect existing subsidies, it should start
by looking at these.
- The recent Treasury consultation provided no indication which
groups they feel it is important to 'strengthen the incentive to
save'. In the absence of this, it is difficult to know whether some
of the policies suggested - such as a single flat-rate of income
tax relief, which would strengthen incentives for some but weaken
them for others - would have the desired effect.
- If the government is looking to redirect subsidies, it would
help promote better policymaking if they were clear about which
groups they think need to be encouraged to save more and design
policies based on robust evidence of what works.
the attached document »