The Pensions and Lifetime Savings Association has warned that a new tax on financial transactions would hit savers and pension schemes.
The EC’s proposal for a Financial Transaction Tax (FTT) is being taken forward by 11 Member States (France, Germany, Belgium, Greece, Austria, Portugal, Slovenia, Estonia, Spain, Italy and Slovakia) under the EU’s ‘Enhanced Co-operation’ procedure.
The intention is to disincentive excessive risk-taking and ensure the financial sector pays its fair share of the costs of the crisis.
The FTT would be set at a minimum of 0.01% on derivatives transactions and 0.1% on other transactions. It could raise €30-35 bn per annum (EU estimate). The EC’s impact assessment for an EU-wide FTT (which was blocked in 2012) indicated a 0.5% negative impact on GDP.
A major from the Council of Ministers Legal Service has found that the FTT would breach EU law in several respects – a significant blow to the FTT project. This development may force EU policy-makers back to the drawing board.
Two Pensions and Lifetime Savings Association member pension schemes have estimated the cost of the FTT at around €35 million and €5 million per annum respectively. We have raised a series of concerns:
- The FTT would increase the cost of investing, and this would feed through into lower pensions.
- The FTT would incentivise lower-risk investments and less use of derivatives.
- The FTT implies that active investment strategies result in lower pensions, which is not the case.
- UK pension schemes would pay the FTT when transacting in securities issued in the 11 participating Member States or when dealing with the UK branch of an institution (such as a bank) with its headquarters in one of the 11.
- It is unclear how the FTT would apply to pension investments in pooled funds (typical for UK pension scheme equity holdings).
- Pensions and Lifetime Savings Association members advise that an exemption for pension schemes would be of only modest value, as fund managers, brokers etc would not be exempt.
Original 2012 FTT policy proposal
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Enhanced Co-operation proposal
11-country FTT proposal and impact assessment