Why is there a state contribution?

[Conan]

Just to clarify the terminology here.

The government aren't "contributing" to anyone's pension. The government don't create any money/wealth, they appropriate from one party to another.

By contributing to a pension you are deferring recognition of your income.
Therefore the government are simply deferring their appropriation of that income by means of tax.
They'll get that tax later, under whatever regime and rates are ruling at that time.

That's only partly true:
- You are ignoring the tax free lump element of pension schemes
- You are ignoring the fact that some retirees maynot be liable for any income tax in retirement or may only be liable for income tax on a small portion of their retirement income.

 

[Duke of Marmalade]

Just to clarify the terminology here.

The government aren't "contributing" to anyone's pension. The government don't create any money/wealth, they appropriate from one party to another.

By contributing to a pension you are deferring recognition of your income.
Therefore the government are simply deferring their appropriation of that income by means of tax.
They'll get that tax later, under whatever regime and rates are ruling at that time.

€100k earned this year, tax approximately €25k
€50k deemed earned this year; €50k deferred until pension, tax approximately €13k
Plus the points @Conan made. The pensions industry is not built on a total scam

 

[Dr Strangelove]

The government aren't "contributing" to anyone's pension. The government don't create any money/wealth, they appropriate from one party to another.

It’s conceptually very different. With AE you will pay tax on your income, it gets put into a big pot with every tax, including things like VAT and corporation tax, and some of this pot is contributed to your scheme.


With tax relief at the moment you are basically getting your own income tax directly into your pension fund.

 

[ClubMan]

If you put €120 of take-home pay into AE the State will top that up by €40. If instead it was conventional you would be topped up by €30 tax relief if you are a standard rate taxpayer but you will be topped up by €80 is you are a 40% taxpayer. Simples.

Sorry to bump an old thread but I don't get this. For a €120 contribution from net pay surely the tax relief "top-up" is €24 for a 20% taxpayer or €48 for a 40% taxpayer? How did you arrive at the €30 and €80 figures and am I missing something?

 

[Duke of Marmalade]

It is from "net pay" i.e. pay after tax. So to contribute €120 from net pay a 20% taxpayer would need gross pay of €150 and a 40% taxpayer would need €200.

 

[ClubMan]

am I missing something?

Thanks. That's what I was missing alright.