[Macha]

Their tax-exempt status is conditional on the pension fund being in action for at least two years. If they're given to you without that, they're no longer tax-exempt pension contributions but employee income which has tax implications for both employee and employer.

[orra]

Yikes, that seems pretty horrendous law. In the the UK the tax exempt status comes from the fact you're locking away the income for, say, decades; and you'll be liable to normal income tax at the point of withdrawal.

It's designed to encourage people to save money into their pensions, to make up for decades of the government underfunding social security pensions. It seems really shitty to make that tax break conditional on job security.

[etothepii]

Designed is a really strong word. The tax free nature of pension contributions come from the near impossibility of otherwise sensibly taxing annuities.

How should a post tax annuity be calculated? The simplest annuities can probably be done (e.g. pay 100k and receive 6k a year til you die). But, if you paid tax on the full 6k that would mean that the 100k was being taxed again. However, tax none of it and that would see no tax on interest because it was being paid through an annuity. That's before one even starts thinking about spousal benefits or inflation linking.

[ghaff]

You get into some funny (and seemingly unfair) rules once tax exemption is involved. It's why you have limited rollover of unused FSA funds in the US--and the ability to rollover at all is relatively recent.

[lotsofpulp]

And yet HSA funds are the most tax advantaged of all. No tax going in, can be invested in anything that can be bought via Fidelity, and no tax coming out, if used for healthcare expenses at any point in your life, even for your dependents.

[ghaff]

No one said laws have to be consistent :-)