UK roundup: Managers face £40m tax bill for investment research

UK-based asset managers face a £40m (€44.7m) annual tax bill as a result of investment research cost unbundling, according to the Office for Budget Responsibility (OBR).

The OBR – set up in 2010 to provide an independent review of the government’s fiscal policies – said the effect of MiFID II rules would cause investment research to be subject to VAT.

Last month, EY senior manager Jochum Zutt said defined benefit schemes could make a saving on investment costs due to the tax change.

He said: “The costs incurred throughout the supply chain would reduce as a result of the research being taxable. This is because the broker providing research to this investment manager would be slightly better off compared to the current position, as it would be entitled to recover VAT associated with the research.

“Thus pension funds operating schemes that are subject to VAT – eg defined benefit schemes – may expect a reduction in fees.”

Northern Ireland scheme begins shift out of equities

Northern Ireland’s local government pension scheme (LGPS) posted a 21.7% investment return in the 12 months to 30 March, according to its annual report.

The Northern Ireland Local Government Officers’ Superannuation Committee (NILGOSC) reported that the pension fund grew to more than £7bn by the end of March.

During the year, NILGOSC appointed Unigestion to a £327m global equity mandate and allocated £100m to the M&G UK Residential Property fund.

“This latter commitment forms part of NILGOSC’s medium-term strategy to reduce reliance on global equity markets and diversify its returns by investing in assets that provide longer term, stable and inflation-linked cashflows,” the pension fund said.

As part of the move to reduce equity exposure, NILGOSC initiated the sale of £175m of UK equities, crystallising gains. It also put in place a 50% hedge of its US dollar exposure.

The fund increased its exposure to infrastructure to 1% of the portfolio during the 2016-17 period. The investment was made through a collaborative venture with the Lothian Pension Fund in Scotland, and included a £10m co-investment.

NILGOSC said: “The underlying principle behind this collaboration on alternative investments is to identify assets that are in the mutual interest of investors and their stakeholders, specifically through the benefits of scale and improved commercial terms.

“It is intended that this co-investment strategy will sit alongside the core primary infrastructure funds to help NILGOSC build a diversified portfolio of assets in line with its strategic allocation to the asset class.”

Isle of Man public sector liabilities rocket by 28%

The Isle of Man’s public sector pension liabilities increased by more than a quarter in the 2016-17 financial year, according to an actuarial report.

The report by Hymans Robertson said that combined liabilities for five local government schemes grew from just under £3bn to £3.8bn, an increase of 27.8%.

The schemes are largely unfunded, with benefits being paid from government accounts and a small reserve fund, worth £82.4m at the end of March.

Earlier this year, unions approved a plan to increase contributions to the largest of the island’s public sector funds, the Government Unified Pension Scheme. In March this year contributions rose by 2.5 percentage points to 7.5%, while benefits were reduced by 6%.

The five schemes cater for more than 20,000 active, deferred and pensioner members.