For example, UK equities now typically account for an average of just 20 per cent of UK pension scheme allocations while allocations to global equities have risen to 61 percent, according to the Pensions Protection Fund’s 2017 Purple Book.
Unnecessary tax burden
Many countries, including the UK, give their pension schemes tax exempt status. However, when investing via a pooled fund, the dividends generated by the portfolio are subject to withholding taxes at a rate applicable to the fund in which they are invested, rather than the rate applicable to individual pension fund. This can lead to an unnecessary tax burden.
Why? Some schemes are simply unaware of the implications of withholding tax structures. In part, this is because more traditional fund structures tend to be opaque from a tax perspective.
While many accept that this may have some impact on their returns, what they may not know is that this can erode as much as 20-40 basis points* from the performance of their global equity investments. This represents a significant portion of potential returns for tax-exempt investors. And as global equity investments are an integral part of many pension schemes’ investment strategies, a tax efficient way to invest in them is crucial.
The smarter solution
AMX wanted to remedy this unnecessary drain on performance and ensure that pension schemes were benefiting from their full entitlement.
To do this, we launched Common Contractual Funds (CCFs), an Irish tax transparent pooled fund structure that enables ‘look through’ tax treatment. As a tax transparent vehicle, CCFs allow tax exempt investors – for example UK pension schemes – to benefit from their tax exempt status when investing in global equity strategies.
Accessing CCFs via AMX means that investors can still benefit from the advantages of a pooled fund structure, such as; lower management fees, low governance implementation, and single line holding, while also being confident that the tax status to which they are entitled is respected.
For more information about CCFs, contact Jignasa Patel at jignasa.patel@theamx.com.
*Source: AMX, April 2018