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Do up-front tax incentives affect private pension saving in the United Kingdom?

Author

Listed:
  • Rowena Crawford

    (Institute for Fiscal Studies and Institute for Fiscal Studies)

  • Richard Disney

    (Institute for Fiscal Studies and University of Sussex)

  • Carl Emmerson

    (Institute for Fiscal Studies and Institute for Fiscal Studies)

Abstract

The paper examines how individuals respond to complex decision-making environments – in particular, whether up-front financial incentives are an effective policy lever to change behaviour. The paper argues that incentives differ in their transparency and in their complexity; individuals are more likely to respond to incentives that are both transparent and imply a large pay-off in terms of net income. The paper focuses on household ‘tax planning’ in the context of tax reliefs for retirement saving in the United Kingdom. It examines whether take-up of retirement saving instruments increases at the higher rate threshold for income tax, since tax relief is given at the marginal tax rate and should be more attractive to those just above this threshold than to those just below it. It then examines a more complex case where the tax system provides an incentive for pension saving to do be done by one member of a couple. Econometric results are obtained from the Family Resources Survey on these two tests of household responses to complex incentives.

Suggested Citation

  • Rowena Crawford & Richard Disney & Carl Emmerson, 2012. "Do up-front tax incentives affect private pension saving in the United Kingdom?," IFS Working Papers W12/05, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:12/05
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    File URL: http://www.ifs.org.uk/wps/wp1205.pdf
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    References listed on IDEAS

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    Cited by:

    1. Prabhakar Rajiv, 2018. "Are Basic Capital Versus Basic Income Debates Too Narrow?," Basic Income Studies, De Gruyter, vol. 13(1), pages 1-6, June.
    2. Laurence O'Brien, 2024. "The effect of tax incentives on retirement saving," IFS Working Papers W24/45, Institute for Fiscal Studies.
    3. Laurence O'Brien, 2023. "The effect of tax incentives on private pension saving," IFS Working Papers W23/10, Institute for Fiscal Studies.

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