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Taxation, Pension Schemes, and Stakeholder Wealth

Advances in Taxation

ISBN: 978-1-83909-186-5, eISBN: 978-1-83909-185-8

ISSN: 1058-7497

Publication date: 19 October 2020


Although tax relief on pensions is a controversial area of government expenditure, this is the first study of the tax effects for a real-world defined benefit pension scheme. First, we estimate the tax and national insurance contribution (NIC) effects of the scheme's change from final salary to career average revalued earnings (CARE) 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 new members and the sponsor, before and after the rule changes. We find the total subsidy split is roughly 40% income tax subsidy and 60% NIC subsidy. If lower tax rates in retirement and the risk premium effect of the exempt-exempt-taxed (EET) system are not viewed as a tax subsidy, the tax subsidy to members largely disappears. Any remaining subsidy drops, as a proportion of pension benefits, for high earners, as does that for NICs.




We wish to thank John Board (Reading), Dimos Andronoudis (Bristol), the referee, and participants in the British Accounting and Finance Association Conference, Westminster, and the 25th Annual Global Finance Conference, Paris, for their comments on an earlier draft.


Platanakis, E. and Sutcliffe, C. (2020), "Taxation, Pension Schemes, and Stakeholder Wealth", Hasseldine, J. (Ed.) Advances in Taxation (Advances in Taxation, Vol. 27), Emerald Publishing Limited, Bingley, pp. 125-158.



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