Table of Contents

  • Financial Incentives and Retirement Savings reviews how countries design financial incentives to promote savings for retirement and examines whether there is room for improvement. Given the cost financial incentives represent for governments, it is important to verify whether they are still effective tools for encouraging citizens to save for retirement. The publication first describes how countries currently design financial incentives. It then assesses the overall tax advantages that these incentives provide to individuals, how these incentives affect the way individuals save for retirement and the fiscal cost these incentives represent to governments. The publication also compares different approaches to designing financial incentives based on their inherent characteristics and within a common framework to assess the different implications for individuals and governments. Finally, it provides policy guidelines to help countries improve the design of their financial incentives with a view to promoting savings for retirement.

  • Governments have long used financial incentives to promote savings for retirement. Financial incentives are meant to encourage participation in retirement savings plans and boost overall retirement income by making private savings, as a complement to public savings, more attractive. Historically, tax incentives have been the dominant type of incentive, providing favourable tax treatment to retirement savings as compared to other types of savings. More recently, new types of financial incentives have emerged, which are not linked to the tax system. These non-tax incentives include matching contributions, where governments match the employee’s contribution to the pension account, and fixed nominal subsidies paid into the pension account of eligible individuals.

  • This chapter first explains the scope of the analysis, describing the different types of financial incentive considered, it then presents different motives for countries to introduce financial incentives to promote savings for retirement, and it ends providing the structure of the publication.

  • This chapter describes and compares the tax treatment of retirement savings in funded private pension arrangements across 42 OECD and selected non-OECD countries. It provides details regarding the tax treatment of contributions, returns on investment, funds accumulated and withdrawals. It also describes other forms of financial incentives offered to individuals saving for retirement, mainly matching contributions and fixed nominal subsidies. The information refers to 2018 and covers all types of funded private pension plan in each country.

  • This chapter assesses whether the design of financial incentives in different countries provides a tax advantage when people save for retirement. It calculates the tax advantage that individuals saving into retirement savings plans may enjoy over their lifetime. This overall tax advantage is the amount that an individual would save in taxes paid by contributing to a retirement savings plan instead of putting the same amount into an alternative benchmark savings vehicle. It includes the effect of both tax and non-tax financial incentives, and it is calculated for different types of plans across 42 OECD and selected non-OECD countries.

  • This chapter examines whether financial incentives are effective tools to promote retirement savings. It reviews the empirical and non-empirical literature analysing the impact of tax and non-tax financial incentives on the way individuals save for retirement. In particular, it assesses whether individuals increase their participation in, and contributions to, retirement savings plans as a response to financial incentives, and whether this is achieved through an increase in savings or a reallocation of savings.

  • This chapter provides an assessment of the cost of promoting savings for retirement via tax and non-tax financial incentives from the point of view of fiscal policy and the budget. It first defines the concept of tax expenditure and presents how countries report the cost related to financial incentives for retirement savings. It then introduces a measure that allows for cross-country comparisons and calculates that measure for a selection of countries.

  • This chapter first describes the main features of the most common approach currently used by countries to promote savings for retirement, which taxes only pension benefits and exempts contributions and returns on investment. The chapter then assesses alternative approaches to designing financial incentives using a theoretical framework to see whether they would improve on the current main approach. The analysis measures improvement through the tax advantage that people may get over their lifetime when saving for retirement, and through the fiscal cost for the treasury.

  • This chapter provides eleven policy guidelines to help countries improve the design of their financial incentives to promote savings for retirement. It considers the different results discussed and examined in the previous chapters for arguing in support of each of the policy guidelines.

  • This annex provides detailed information about how OECD and selected non-OECD countries design financial incentives to promote savings for retirement. Each country profile includes the following sections: i) the structure of the funded private pension system; ii) the tax treatment of retirement savings (contributions, returns on investment, funds accumulated and pension income); iii) the description of non-tax incentives; iv) the social treatment of contributions and benefits; v) the tax treatment of pensioners; and vi) the incentives for employers.