Across different tax jurisdictions there are varying treatments observed however, the two primary tax treatments for pensions are EET and TEE. The former system allows contributions and investment returns to be exempt from tax whilst retirement income is taxed. In contrast, the latter taxes contributions whilst returns and retirement income are tax-free. There are variations to the two main systems found across different jurisdictions. We will draw comparisons with the UK tax system across four geographic locations, namely; Australia, Denmark, Japan, and Portugal.
Australia
In Australia, tax treatments are distinguished by three main types of contributions: before-tax (e.g. employer and employee contributions), after-tax (e.g. spouse or personal contributions), and state contributions. Before-tax contributions are taxable at 15% up to a limit of AUD 30,000 (£16,400), and contributions exceeding the limit are taxable at the individual’s marginal income tax rate with an additional charge on the increase in tax liability. These contributions are also taxable when benefits are withdrawn. After-tax contributions are tax-free upon entering the fund as the individual has already been taxed at their marginal rate. There is a limit of AUD 180,000 (£98,100) on …show more content…
In age savings plans, employee contributions are taxed at the individual’s marginal income tax rate and the pension income is exempt. Whilst those to all other plans are tax-exempt up to DKK 51,700 (£41,400), with the excess taxed at a flat rate of 20%. Pension income is taxed at the individual’s marginal income tax rate and is generally on a programmed withdrawal and cannot be taken out earlier than five years before the official retirement age. Lump sums for all plans are taxed at a flat rate of 40%. However, an individual may transfer their pension to an age savings scheme prior to retirement in order to receive a tax reduction of 2.7%
Australia
In Australia, tax treatments are distinguished by three main types of contributions: before-tax (e.g. employer and employee contributions), after-tax (e.g. spouse or personal contributions), and state contributions. Before-tax contributions are taxable at 15% up to a limit of AUD 30,000 (£16,400), and contributions exceeding the limit are taxable at the individual’s marginal income tax rate with an additional charge on the increase in tax liability. These contributions are also taxable when benefits are withdrawn. After-tax contributions are tax-free upon entering the fund as the individual has already been taxed at their marginal rate. There is a limit of AUD 180,000 (£98,100) on …show more content…
In age savings plans, employee contributions are taxed at the individual’s marginal income tax rate and the pension income is exempt. Whilst those to all other plans are tax-exempt up to DKK 51,700 (£41,400), with the excess taxed at a flat rate of 20%. Pension income is taxed at the individual’s marginal income tax rate and is generally on a programmed withdrawal and cannot be taken out earlier than five years before the official retirement age. Lump sums for all plans are taxed at a flat rate of 40%. However, an individual may transfer their pension to an age savings scheme prior to retirement in order to receive a tax reduction of 2.7%