OECD/EU PROJECT ON TAXATION, FINANCIAL INCENTIVES AND. Pablo Antolin OECD DAF/FIN Pension Unit RETIREMENT SAVINGS

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1 OECD/EU PROJECT ON TAXATION, FINANCIAL INCENTIVES AND Pablo Antolin OECD DAF/FIN Pension Unit RETIREMENT SAVINGS

2 OECD objectives and EC White Paper Developing complementary private/ funded retirement savings Improve the design of incentives to save for retirement Strengthen the value of tax incentives for mid to low income people 2

3 Purpose of the Project Assess the role of the tax system and other financial incentives in supporting retirement income security Determine the total budgetary cost of financial and tax incentives, per unit of contribution and as a share of GDP Assess whether those incentives are the more efficient way to provide for retirement (cost effectiveness policies) 3

and tax incentives, per unit of contribution and as a share of GDP Assess whether those

4 Outline of the project Stocktaking of the tax and fiscal incentives to save for retirement in each country Assessment of those incentives Impact on retirement savings Assessment of the fiscal cost Empirical evidence Alternative incentives Policy recommendations 4

those incentives Impact on retirement savings Assessment of the

5 Stocktaking Tax rules for contributions, returns on investment and pension benefits of different types of pension arrangements in each country. Differentiating by PAYG pensions and funded pensions, and within the later btw occupational and personal arrangements as well as DB and DC Tax rules on programmed withdrawals, annuity products 5

Differentiating by PAYG pensions and funded pensions, and within the later btw

6 Assessment tax and fiscal incentives It will be done by different income levels Impact of tax and fiscal incentives of Contributions Returns on investment Pension benefits Indicators: (1) Average net tax incentive per unit of pre-tax contributions (2) Tax expenditures: total budgetary expenditure of tax incentive through the life cycle 6

benefits Indicators: (1) Average net tax incentive per unit of pre-tax contributions

7 Impact on retirement savings This section incorporates the potential effect of public retirement provision (e.g. interaction btw means tested public benefits and minimum pensions) 7

8 Empirical evidence Empirical evidence on the impact of tax and financial incentive on the amount of retirement saving New savings versus reallocation Need for longitudinal studies Literature review 8

9 New Savings versus Reallocation Policy objective: increase national savings (e.g. USA) or earmark savings for retirement (e.g. Countries with already high saving rates: France) New savings increase national savings (Investment => higher future GDP, but lower consumption, VAT tax revenues, lower GDP growth) Reallocation: just earmark for retirement 9

savings (Investment => higher future GDP, but lower consumption, VAT tax revenues,

10 Tax form tax incentives Earned income Deductions, exemptions, reliefs (e.g. charity) Taxable income Applied tax rates by income brackets Tax due Tax credits (e.g. credits per child) Tax payments 10

11 Tax incentives Most common: deductions on income Tax deductions (incentives increase with income) Alternatively, tax credits (inversely related to income) Matching contributions 11

12 Tax incentives - Tax deductions

13 Tax incentive Tax credits Tax credit based on a fixed amount for all Tax credit based on a percentage of contributions plus a cap

14 Incentive Matching contributions Fixed contribution match (1 pp) Fixed contribution match with a cap (1 pp, plus cap of median income)

15 Tax deduction + matching contributions Tax deduction with a matching contribution of 1pp Tax deduction with a matching contribution of 1 pp and a cap at the median income matching

1pp Tax 1 pp and a cap at the median income

16 Alternative incentives Tax and fiscal incentives that are inversely related to income Tax and fiscal incentives income neutral Matching contributions Either by the government or employers Subsidies for low income individuals (Australia, Germany, New Zealand)

neutral Matching contributions Either by the government or

17 Policy discussion Cost effectiveness of tax and financial incentives to promote private pension savings Current arrangements and alternative arrangements Would it be better to use the tax expenditure of those incentives to have more resources in the PAYG public pension system: Depends on the sources of the financial unsustainability of the public provision.

use the tax expenditure of those incentives to have more resources in the PAYG public

18 THANK YOU VERY MUCH 18

FISCAL INCENTIVES AND RETIREMENT SAVINGS Project Outline 2014-2015

FISCAL INCENTIVES AND RETIREMENT SAVINGS Project Outline 2014-2015 The OECD argues in favour of complementary private pension savings to boost overall saving for retirement. Financial incentives may be