Tax Relief and Partnership Pensions (A version of this paper has now been published in the journal Fiscal Studies, vol.19 No.4 ,1998)

Julian Le Grand and Phil Agulnik

Published February 1998

Government support of private (occupational and personal) pensions through the system of tax reliefs is large: between one quarter and one third of that of direct support of state pensions through public expenditure. However, it is regressive, lacks transparency and is difficult to control. This papers argues that it should be replaced by a cost-neutral matching grant or tax-credit scheme. Such a scheme would embody the 'partnership' idea implicit in much government policy in this area, but would be much more progressive, more open, and more accountable than existing arrangements. The argument is illustrated by statistical comparisons of the distributional impact of the present system and three alternative versions of the tax-credit scheme. An appendix discussed the methodology for calculating the cost of pension tax relief over time.