The Taxation of Private Pensions in the UK

Carl Emmerson and Paul Johnson

Private pension saving is hugely important in the UK and traditionally the taxation of pensions has been relatively stable and rather generous, beyond the treatment offered by an expenditure tax regime. Recently, though, there have been substantial changes. Annual and lifetime allowances have been cut dramatically, largely as a way of increasing tax revenues. At the same time the requirement to annuitise pension wealth has been abolished, making pension saving look much more similar to other forms of saving.

Meanwhile the tax treatment of other important forms of saving has been made more generous. The motivation for many of the reforms enacted has been largely one of increasing tax revenues. They have been encouraged by a misunderstanding of the purpose, and cost, of the current system. T