UK - The National Association of Pension Funds (NAPF) and the £8bn (€10.14bn) Wheels Common Investment Fund (WCIF) plan to bring a joint legal challenge against the UK government over the application of value-added tax (VAT), which could result in £300m payout for the pension fund sector.

The NAPF and WCIF - the multi-employer pension scheme covering Ford Motor Company, Jaguar Cars and Land Rover - are launching a legal challenge against HM Revenue & Customs (HMRC) to decide whether investment management services supplied to occupational pension schemes should be exempt from VAT.

If the challenge is successful, the NAPF estimates in addition to saving the £100m a year currently paid in VAT, the pension fund sector could receive up to £300m in backdated VAT for the past three years, although it pointed out a recent House of Lords judgement means claims could also be made for the period 1990-1996.

Beneficiaries from a winning case would mainly be private sector DB schemes with segregated investments managed through asset managers, as investment management services provided through pooled funds and insurance wrappers - such as in defined contribution (DC) schemes - are already exempt from VAT.

The decision to launch a legal challenge follows a judgment by the European Court of Justice (ECJ) in June 2007, when it ruled in the JPMorgan Fleming Claverhouse case investment trust companies (ITCs) should be exempt from paying VAT on investment management services.

Although HMRC withdrew its appeal against the ECJ judgment at the time and accepted ITCs were exempt from VAT, it stated in a briefing note it "remains of the view that the judgment does not apply to funds other than ITCs".

As a result, in December 2007, Joanne Segars, chief executive of the NAPF, argued that pension funds should join together to challenge this view, but confirmed if there was enough interest the NAPF would co-ordinate a case. (See earlier IPE story: NAPF talks legal battle over 'pensions' VAT)

Now the NAPF has confirmed it is part of a joint challenge, it urged schemes to talk to investment managers about submitting protective claims if they have not already done so.

At the same time, the organisation said pension funds which have submitted claims and been rejected should now ask for their appeal to stand behind the NAPF/WCIF case.

Segars said: "After last year's ECJ judgment there is a strong case that DB occupational pension funds should be exempt from paying VAT on investment management services.

"Ultimately, a successful scheme would benefit members in both open and closed DB schemes. It would reduce running costs and increase the available money for investment," she added.

This latest legal challenge follows a ruling against HMRC in January, over the payment of VAT charges by independent trustees when working with a pension scheme that is in wind-up.

This successful appeal by Capital Cranfield Trustees means trustees in a similar position can also claim back up to three years of VAT refunds against HMRC, leading lawyers to suggest the ruling could trigger "millions" of claims. (See earlier IPE story: UK VAT ruling could trigger ‘million' refund claims)

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email