Some implications of changing the tax basis for pension funds

<p>Governments in many developed economies provide private pension plans with significant taxation incentives. However, as many retirement income systems are now being reviewed due to demographic, social and economic pressures, these taxation arrangements are also under scrutiny. This paper discusses some of the implications of the differences between the traditional taxation treatment adopted by most OECD nations and that adopted by Australia, where there is a tax on contributions, a tax on investment earnings and a tax on benefits. The results show that there are significant differences in the net value of the benefits received by individuals and the taxation revenue received by the government. On the other hand, it is shown that there is remarkably little to distinguish between the two tax structures in terms of summary measures of lifetime income, although the form in which the benefit is taken in retirement is significant in influencing intragenerational equity. </p>