Like buses, VAT cases involving pension funds seem to come in threes. The latest arrival is the European Court decision in the Danish ATP case which completes a set with Wheels and PPG. The Court has ruled that defined contribution schemes can qualify for exemption of management fees. This is on the basis that a DC fund is a “special investment fund” for VAT purposes – unlike a DB fund which the Court ruled was not a SIF in the Wheels case. The Court also gave some useful guidance on what services can fall within the definition of VAT exempt “management”.
The Court determined that a DC pension scheme can qualify as a SIF if it meets all of the following criteria:
- it is funded by the persons to whom a retirement benefit is to be paid;
- the savings are invested using a risk spreading principle; and
- the investor bears the investment risk.
In relation to management, the Court said that management includes not only investment management but also issuing account statements, processing and recording of missing payments, crediting contributions to customers’ accounts, providing payment handling facilities, the opening of accounts and the provision of registration and reporting facilities.
For UK DC schemes the impact may be limited – many are managed by insurance companies so that the services provided already fall within another exemption from VAT. But where VAT has been charged in the past, there is now an opportunity to reclaim it from HMRC. Whilst the focus may currently be on the pensions reforms announced in Wednesday’s Budget, trustees and administrators should not overlook what might look like a technical VAT change.