Pension schemes fight for £100m a year VAT refund

Britain's final salary pension schemes are taking the Government to the European Court of Justice in a bid to save £100m a year in taxes they claim they are being unfairly charged.

The claim, which is being jointly mounted by the National Association of Pension Funds (NAPF) and Wheels, the Ford pension scheme in the UK, is that an anomaly in British tax regulations means final salary plans are charged VAT on the fees they pay for investment management services. Many investment funds are exempt from VAT, including other types of pension scheme, but final salary plans do not satisfy the tests applied by the British tax authorities.

The case mirrors the successful claim made by investment trusts four years ago at the ECJ, in which that industry won the right to the same tax treatment as unit trusts and open-ended investment companies.

Joanne Segars, the NAPF's chief executive, said the investment trust ruling had given schemes hope of winning their claim. "We are pleased the case is going to the ECJ and we feel we have a strong case," she said. "Defined benefit pension funds should be exempt from paying VAT on investment management services."