NAPF leads call for abolition of stamp duty
UK- Leading global financial authorities gathered today to call on the UK government to abolish stamp duty on UK share transactions. The average cost of stamp duty to consumers in defined contribution company pension schemes is about £8,000 over a 25-year contribution period and in the case of defined benefits schemes, the employer bears the tax.
Speaking at the “Energising the Economy” conference today, Christine Farnish, chief executive of the National Association of Pension Funds (NAPF) argued: “the abolition of stamp_duty would go a long way towards easing the burden of pension provision among UK employers, and boosting the retirement incomes of millions of tomorrow’s pensioners.”
A recent survey conducted by the NAPF revealed only 15% of consumers to be dedicating the recommended 20% of their salary to a pension scheme. A disincentive, such as stamp duty, will not help the bid to encourage greater savings by UK consumers..
Furthermore, Farnish proposes that stamp duty is aggravating the issue of increasing closure of defined benefit schemes. “The cost to the employer is yet another reason to hasten the shift from defined benefits to defined contributions schemes.”
As the UK government plans to increase the proportion of retirement income provided by the private sector from 40% to 60% over the coming decades, it is important to encourage employees to save more, and employers to offer workplace pensions argues the NAPF.
Michael Parker, principal at the consultant Tower Perrins firm agrees stamp duty should be abolished. “It is an obscure way of raising tax, and seems entirely antiquated. It is not only a drain on pensions, but means that the UK market is not as efficient as it might be.”
UK pension funds have traditionally been major investors in UK equities – since 1980 an annual 45% to 60% of UK pension fund assets have been allocated to UK equities – but this allocation is falling, partly claims Farnish, as a result of stamp duty.
In the decade from 1991, the proportion of UK pension fund assets invested in UK equities fell from 55% to 46%, while the share invested in overseas equities rose from 20% to 25% over the same period. If this decline continues the competitiveness of the UK’s financial markets will diminish.
Speaking at the conference chairman of the London Stock Exchange Don Cruickshank backed the call for the abolition of stamp duty.