An ageing population is putting pressure on European pensions systems. There is an increasing demand for a more sustainable EU-wide pensions system, and in order to meet it a regulatory overhaul is underway in the shape of the Pan- European Personal Pension Product (PEPP). While the EC has acknowledged the importance of tax relief with regards to pensions schemes for consumers, tax exemptions for cross-border pension funds still have a long road ahead. One issue gaining momentum though is Withholding Tax (WHT) refunds on foreign investments.
The costly and complicated process of reclaiming tax on foreign investments is an issue faced by pension funds across Europe. Despite recent strides to simplify the process, high costs associated with legal procedures and unclear definitions of what constitutes a pension fund remain. Dutch asset managers APG and PGGM, together with PensionsEurope, recently spoke out against the current system following an EC meeting on codes of conduct for WHT. The Dutch pension sector as a whole stands to gain €300 million from WHT refunds, whereas in the current climate smaller schemes are hit the hardest. In 2005 PensionsEurope submitted complaints of discriminatory behaviour in 19 EU Member States, claiming that they were not sufficiently acknowledging the right of pension funds to WHT refunds. The added lack of a fiscal definition of pension funds results in foreign actors facing obstacles and getting treated differently from local ones, who are often exempt from dividend tax. Ensuring a level playing field across borders requires a harmonized set of rules and definitions, key to a sustainable pension system for the future.