Tax incentives to participate in occupational pension schemes: the perspective of an individual

Anna Gierusz , Agnieszka Pobłocka

Abstract

Tax incentives can be an important tool in encouraging private pension provision. Many possible pension tax regimes can be applied in occupational pension schemes. They differ depending on whether contributions into the scheme, investment returns earned and benefits paid out of the scheme are taxed or exempt from tax. Many OECD countries apply an EET system, where contributions and investment returns are exempt from income tax and benefits are taxed. This can be considered attractive from the member’s point of view, as the tax relief is received immediately, whereas the tax is applied to benefits which will be paid in a distant future. However, other tax regimes are also in use. Currently in Poland the system in use is TEE (contributions are taxed whereas investment returns and benefits are exempt), and this is likely to be used in the new occupational schemes which are due to be introduced in Poland in 2019. Aim of this paper is to compare the different tax regimes which can serve as an incentive to save in the new pension schemes in Poland from the member’s point of view. Model of a pension scheme under different tax regimes was constructed. This allows to calculate benefits and replacement rates that could be achieved, as well as post tax income throughout the scheme membership. Different categories of workers based on their salaries were considered. It can be shown that for chosen assumptions TEE and TTE regimes result in higher replacement rates for high earners in comparison to low earners, whereas for EET and ETT the opposite is true. In addition, there is almost no difference in replacement rates under different tax regimes for low earners, as only the taxation of investment returns has impact. In contrary, for the high earners different tax regimes can result in higher or lower replacement rates. The practical implication of the paper is that there is no single tax regime that would provide highest replacement rates for all workers. Different aims can be achieved by using different regimes, depending on particular country’s income tax rules.
Author Anna Gierusz (FM / DS)
Anna Gierusz,,
- Department of Statistics
, Agnieszka Pobłocka (FM / DS)
Agnieszka Pobłocka,,
- Department of Statistics
Pages279-289
Publication size in sheets0.5
Book 11th International Scientific Conference "New Challenges of Economic and Business Development - 2019: Incentives for Sustainable Economic Growth": Riga, Latvia, May 16-18, 2019: proceedings, 2019, University of Latvia, ISBN 978-9934-18-428-4, 937 p.
Keywords in Englishtax incentives, tax systems, occupational pension schemes
URL https://www.bvef.lu.lv/fileadmin/user_upload/LU.LV/Apaksvietnes/Fakultates/www.bvef.lu.lv/Konferences/2019/Proceeding_of_Reports_2019__1_.pdf
Languageen angielski
Score (nominal)15
ScoreMinisterial score = 15.0, 07-08-2019, ChapterFromConference
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