OECD/EU Project on Taxation, Financial Incentives and Retirement Savings

OECD/EU Project on Taxation, Financial Incentives and Retirement Savings Pablo Antolin OECD DAF/FIN Pension Unit

EC White Paper • Objective 2. Developing complementary private/funded retirement savings • Goals: (1) better opportunities for complementary savings; (2) enhance safety and performance of funded schemes • The OECD has several projects that we believe could be helpful contribution to the EC work

EC White Paper • OECD Roadmap on Retirement Saving Schemes: improve the design of these schemes with the goal of strengthening retirement income from this schemes. • Assess how much people have and may have to finance retirement, examining the role of private provision in retirement adequacy - RSA • Assessment of financial and tax incentives promoting retirement savings

Financial and tax incentivesThe cost effectiveness of public support for private pension provision

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)

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

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

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

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)

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

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

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.

Thank you very much www.oecd.org/insurance/private-pensions

OECD/EU Project on Taxation, Financial Incentives and Retirement Savings