Pension Schemes, Taxation and Stakeholder Wealth: The USS Rule Changes

Emmanouil Platanakis and Charles Sutcliffe
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Emmanouil Platanakis: School of Management, University of Bath
Charles Sutcliffe: ICMA Centre, Henley Business School, University of Reading,

ICMA Centre Discussion Papers in Finance from Henley Business School, University of Reading

Abstract: Although tax relief on pensions is a controversial area of government expenditure, this is the first study of the tax effects of a real world defined benefit pension scheme - the Universities Superannuation Scheme (USS). First, we estimate the tax and national insurance contribution (NIC) effects of the rule changes in 2011 on the gross and net wealth of the sponsor, government, and 16 age cohorts of members, deferred pensioners and pensioners. Second, we measure the size of the twelve income tax and NIC payments and reliefs for members and the sponsor, both before and after the rule changes. We find the total subsidy split is roughly: 40% income tax subsidy; 30% member' NIC subsidy; and 30% sponsor NIC subsidy. However government proposals for reform have concentrated exclusively on the income tax relief, neglecting the substantially larger NIC relief, possibly because they have overestimated the size of the income tax relief.

Keywords: Pension schemes; Taxation; Subsidy; National Insurance Contributions; Universities Superannuation Scheme; Redistribution; Rule changes (search for similar items in EconPapers)
JEL-codes: G22 H20 J32 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-age and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:rdg:icmadp:icma-dp2017-08

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