Tax after Coronavirus.

Discussion in 'Economics' started by morganist, Jan 29, 2021.

  1. morganist

    morganist Guest

  2. Arnie

    Arnie

    How does "pension pumping" work. How does it reduce UE?
     
  3. morganist

    morganist Guest

    In the United Kingdom there are two pension taxation allowances, the annual pension contribution allowance and the lifetime pension taxation allowance. The lifetime pension allowance is currently £1,073,100 and the annual contribution allowance is £40,000. This means that each person is entitled to pay up to £40,000 a year into their pension that receives income tax relief (any income paid into a pension is tax exempt up to £40,000 per year). Each person can pay the £40,000 a year into their pension until they reach £1,073,100, after which the contributions are no longer taxation exempt.

    The annual allowance can be reduced and still enable a person to reach the full lifetime taxation exemption allowance throughout their working lifetime. The pension saver will not lose any of the taxation exemption if the annual allowance is reduced as long as the lifetime allowance remains the same rate and they continue to contribute in future years. For example if a person works for 35 years and they contribute £30,660 each year they can still reach the lifetime pension taxation allowance, this even gives about a decade of grace of lower or no contributions throughout a working lifetime of 45 years.

    When the annual pension contribution is reduced the population has more disposable income to consume with. This means the rate of consumption increases generating economic stimulus, which in turn increases employment and output. The money that is not saved in pensions through the annual pension contribution reduction is made available for a greater level of demand within the economy. In addition to the this the Treasury has to pay less interest on government debt due to having to borrow less money to pay the tax relief on the now lower pension contributions.

    When this technique was used in the United Kingdom in 2012, which reduced the pension annual contribution allowance from £255,000 to £50,000 the economy stabilised and remained around the 2% economic growth target rate throughout the rest of the decade until the Coronavirus occurred. The rate of unemployment also fell in 2012 and continue to fall as the annual pension contribution allowance fell to £40,000 and other pension reforms were introduced. Pension economic control has proven successful in the United Kingdom and operates outside of the monetary policy.