UK defined benefit (DB) pension schemes are losing out on over £250 million (€276 million) of income a year, at least in part due to a lack of awareness about tax efficient funds, research suggests.
DB schemes invested £56 billion in less tax-efficient funds last year which threatens their ability, as tax-exempt investors, to reclaim any withheld tax paid to foreign governments on foreign equities in pooled funds.
A survey of 120 UK DB schemes revealed that nearly three-quarters were using tax-inefficient fund structures – such as unit trusts, investment trusts and open-ended investment companies – and that nearly 70% of schemes in these funds were unaware of investment income benefits offered by tax transparent funds.
Oliver Jaegemann, chief executive of The Asset Management Exchange (AMX), said missing out on over £250 million of investment income a year was an “own goal” and that schemes could add nearly £2.5 billion in assets over the next ten years in tax-efficient fund structures.
Clive Bellows, regional head of global fund services at Northern Trust, also said asset managers that operate or are planning to launch equity-based European funds “would do well” to consider how the use of a tax transparent fund may benefit their investors.
AMX and Northern Trust sponsored the research.
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