The UK pension system is heavily tax subsidised. In 2007/08 that subsidy cost about £38 billion a year. This makes the subsidy a cost to the UK government that exceeds annual defence spending. Total private pensions paid in 2007/08 were less than the total subsidy given to the industry. Despite more than £80 billion of annual contributions to private pensions in 2007/08 the private pension industry could only pay pensions as a result of the state subsidy it received. Alternatively, it could be argued that all pensions paid in that year were paid at cost to the government. The implication is that significant reform of private pensions in the UK is needed, and the paper suggests a range of potential reforms.
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