Government faces pension-fund tax challenge

LONDON (Reuters) - The government faces a legal challenge over tax on pension funds, which if successful, could see hundreds of million of pounds returned to occupational pension schemes, a pension lobby group said on Monday.

The Wheels Common Investment Fund, an 8 billion pound multi-employer scheme covering the UK car industry, and the National Association of Pension Funds (NAPF) are to challenge HM Revenue & Customs over valued-added tax paid by occupational pension schemes, the NAPF said.

If the challenge is successful, the UK pensions industry could win back up to 300 million pounds in backdated tax paid over the past three years, the NAPF said.

They could also reclaim tax paid in the early 1990s and save an estimated 100 million pounds a year in tax going forward, the NAPF added.

The NAPF and Wheels, which includes Ford's UK pension scheme as well as those of Jaguar and Land Rover, believe that occupational pension funds should be exempt from paying VAT on investment management services, the NAPF said.

Their challenge follows a ruling in the European Court of Justice, which stated that investment trusts should be exempt from this tax.

The beneficiaries would primarily be private sector defined-benefit pension schemes with segregated investments, the NAPF said.