Deferring tax is often described as though the liability disappears. It does not; the payment moves later. The value comes from what happens to the money in the meantime.
The benefit is time on the unpaid amount
Money that would have gone to tax stays invested, and it generates returns for the whole period until the liability is settled.
Those returns belong to the taxpayer even though the underlying amount is eventually paid over, which is the entire economic advantage of deferral.
The longer the deferral and the higher the return, the larger this benefit becomes, which is why it matters most over decades rather than years.
Rates at both ends decide the outcome
Deferral converts tax at today's rate into tax at a future rate, so the comparison between the two determines whether the arrangement helps beyond the time value.
Someone deferring while in a high band and paying while in a lower one gains twice, which is the standard argument for contributing to a deferred account during peak earning years.
The reverse is also possible. Rates can rise, or the taxpayer's own income can be higher later, in which case deferral has moved a liability into a more expensive period.
The liability compounds along with the asset
Because tax is charged on the eventual amount rather than on the original contribution, the sum owed grows as the investment grows.
A deferred account balance therefore overstates what the holder can actually spend, since part of it has always belonged to the tax authority.
Comparing a deferred balance with an already-taxed one on face value is misleading, and the comparison only becomes meaningful after adjusting for the embedded liability.
Deferral and exemption behave differently
Accounts funded with taxed money and growing free of further tax remove the liability rather than postponing it, which makes future rate changes irrelevant to them.
Deferred accounts keep the taxpayer exposed to whatever the rules become, and those rules include not only rates but also required withdrawals and treatment on inheritance.
Holding both types provides flexibility to draw from whichever is more efficient in a given year, which is worth more than optimising for a single predicted outcome.
Where deferral becomes a trap
Large deferred balances can force withdrawals later that push the holder into higher bands, producing a liability the original contributions were made to avoid.
Concentrating everything in deferred accounts also removes the ability to manage taxable income in retirement, since every withdrawal is taxable by construction.
Because contribution limits, withdrawal rules and rate structures differ by jurisdiction and change over time, decisions of this size warrant advice on the rules that actually apply.