Publication: Taxation : The Tax Treatment of Funded Pensions
Date
2005-07
ISSN
Published
2005-07
Author(s)
Whitehouse, Edward
Abstract
The tax treatment of funded pensions is
a critical policy choice in pension reform. In countries
with mature funded systems, like the Netherlands,
Switzerland, the United Kingdom and the United States,
pension funds are worth 85 per cent of GDP on average.
Pension funds in mature systems are large and could prove an
attractive revenue target. They are a major force in private
savings flows, supplying capital to industry and providing
retirement incomes. The note continues with an in depth
analysis of taxing pensions, and further, highlights the
question, how generous a tax treatment? There are three
arguments for taxing pensions more generously that other
kinds of savings. a) to ensure people have a standard of
living in retirement close to when they were working, b) to
cut the cost of social security benefits for pensioners, and
to increase long-term savings. The note concludes that : the
'expenditure tax' taxes pension savings once,
either when contributions are made or benefits withdrawn it
is the best way of taxing pensions, because it is neutral
between consuming now and consuming in the future; most
countries treat pensions close to the expenditure tax, the
pre-paid tax, which exempts benefits, collects more revenue
now, but may not be credible.
Citation
“Whitehouse, Edward. 2005. Taxation : The Tax Treatment of Funded Pensions. World Bank Pension Reform Primer Series. © World Bank, Washington, DC. http://openknowledge.worldbank.org/entities/publication/95880632-e352-50ac-883d-2d4bb73d60d2 License: CC BY 3.0 IGO.”