Study title

Tax incentives to encourage retirement saving in the UK are relatively complex and have changed frequently. The research will investigate how these facts affect individual and household behaviour. Specifically it tests whether measured responses to tax incentives depend not just on the size of the incentive but also on the complexity of the tax regime. Research in the US suggests that behavioural responses to tax changes are identified more precisely where, first, the tax incentive is of large monetary value to the household and second, where the tax regime is relatively transparent. These issues will be approached using two distinct methodologies; an important part of the project will be to assess whether these methodologies generate similar findings and if not, why not. The first methodology will examine actual household pension decisions using household data sets and standard econometric methods. The case study will be the differential incentives arising from tax relief on pension contributions that depend on the marginal rate of income tax in a simple case (a single earner-household), and a complex case (households with multiple earners). The second methodology uses a laboratory setting to examine participants' decision on how much to save in different periods. Initially, participants will be asked to respond to relatively simple systems of incentives which differ across participants only in the value of the incentive offered. Participants will then be asked to respond to differential incentives in settings where the environment (in terms of returns to various strategies) is more complicated.