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Research into use of less tax-efficient funds by UK private defined benefit schemes

AMX and Northern Trust commissioned research between January and April 2020 into the potential scope for UK private DB pension funds to improve the tax-efficiency of their equity investments.

Tax-efficiency has become an important factor for fund performance in recent years – particularly for pension funds that suffer too much withholding tax (WHT) on the dividends of their pooled equity investments.

This is because UK pension schemes, as tax-exempt investors, are entitled to reduced WHT on dividends from global equities under double taxation agreements. However, unless they invest via tax-transparent funds or insurance policies for their pooled fund investments, pension schemes will not be entitled to apply for reclaims or reduced WHT to foreign governments’ tax authorities on their foreign equity holdings.

As a result, many pension schemes in the UK are potentially suffering more WHT than may be necessary, which may reduce schemes’ income and ultimately have a negative effect on company sponsors’ ability to meet member payments.

AMX and Northern Trust commissioned research from Broadridge Financial Solutions between January and April 2020 to investigate the potential tax inefficiencies among UK private sector defined benefit (DB) pension schemes.

Key findings of our research include:

  1. UK private DB pension schemes are unnecessarily paying £256 million in WHT annually.
  2. Cumulative tax drag for UK private DB schemes for the 10 years from 2019 will total £2.4 billion.
  3. 72% of schemes invest via less tax-efficient fund structures.
  4. Large and small schemes use less tax-efficient funds.
  5. Awareness of the costs of less tax-efficient investing is low among UK DB schemes.
  6. 69% of respondents from schemes using less tax-efficient funds are unaware of the benefits of tax-transparent funds relative to other fund structures.


Significant scope exists for UK private DB pension funds to improve the tax-efficiency of their equity investments. Similarly, asset managers that operate, or are planning to launch, listed equity funds should consider how the use of a TTF may be of benefit.

It is now potentially more cost-effective than ever for them to derive the advantages of tax-transparency, while optimising and creating efficiencies across their fund ranges.

For more information, you can download our research summary.

Clive Bellows portrait

Clive Bellows

Head of Global Fund Services, EMEA
Mark Austin portrait

Mark Austin

Pensions and Insurance Executive, EMEA

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