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

ICMA Centre, Discussion Paper Number: ICM-2017-08

33 Pages Posted: 21 Sep 2017 Last revised: 24 Jan 2018

See all articles by Emmanouil Platanakis

Emmanouil Platanakis

University of Bath - School of Management

Charles Sutcliffe

University of Reading - ICMA Centre

Date Written: January 24, 2018

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% members’ 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

JEL Classification: G22, H20, J32

Suggested Citation

Platanakis, Emmanouil and Sutcliffe, Charles M., Pension Schemes, Taxation and Stakeholder Wealth: The USS Rule Changes (January 24, 2018). ICMA Centre, Discussion Paper Number: ICM-2017-08. Available at SSRN: https://ssrn.com/abstract=3039364 or http://dx.doi.org/10.2139/ssrn.3039364

Emmanouil Platanakis

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Charles M. Sutcliffe (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

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