Dutch Pensions Federation: Admin tax at odds with cost-cutting efforts

The introduction of VAT in the Netherlands has increased pensions-administration costs by as much as 17% for more than for 5m participants and pensioners, the Pensions Federation has claimed.

In a position paper submitted to Parliament, the industry group said the tax policy was at odds with the government’s aim of cutting costs in pensions.

The government introduced VAT on pensions-administration provision on 1 January 2015, when it abolished the VAT exemption for pension funds to create a level playing field with insurers.

The tax measure, however, does not hit large pension funds, such as the €372bn civil service scheme ABP, the €179bn healthcare scheme PFZW or the €67bn metal scheme PMT.

These large schemes make up a “fiscal unit” with providers APG, PGGM and MN, respectively – on account of their being the providers’ only or largest stakeholders.

Bram van Els, spokesman for the Federation, said: “This creates uneven effects at pension funds. The extra costs resulting from the VAT levy seem little, but, in the long term, they will come near the level of the expected rights cuts next year, which often comprise a few euros a month.”

The Pensions Federation also lamented that VAT was charged on services for defined benefit plans but not defined contribution arrangements.

The industry organisation disputed the cited reason for the distinction – that participants in a DC scheme run investment risk, whereas participants in a DB plan supposedly do not.

“This conflicts with all other rules, which stipulate that pensions funds must warn their participants of the risks of a DB plan,” Van Els said.

The highest court in the Netherlands is now looking into a case, brought by PFZW and Robeco, which have argued that pension funds with a DB plan should be granted a similar VAT exemption as schemes with DC arrangements.