Fund management houses will have to provide stakeholder within an effective 0.9% charge as a result ...
Fund management houses will have to provide stakeholder within an effective 0.9% charge as a result of stamp duty reserve tax (SDRT).
While the charging cap for stakeholder is 1%, non-life company funds such as unit trusts and Oeics, will have to include SDRT, which totals around 0.1% when applied to the fund, whereas life offices are exempt. The discrepancy is the result of structural differences between life companies and fund management houses rather than the funds they run.
While agreeing the amount may be small in percentage terms, Alan Ainsworth, chairman of Autif, said as an aggregate it is a large amount. "The absolute amount of money is not insignificant," he added.
Paul Kafka, executive director of Fidelity Investments, said: "For an investment house to offer a standard defined contributions product within 1% it may have to be a fund of funds structure, which is one of the easiest ways of staying within the 1%. However, it will still be subject to SDRT. We also have to include other costs such as administration, marketing and fund management. The danger in this imbalance is that the tighter the margins, the more it will come down to only a few providers in the market and a limited range of funds, which restricts choice for pension investors."
SDRT was introduced in last year's budget as a replacement for stamp duty. The issue of SDRT has been debated for the better part of a year as fund management groups have lobbied the Revenue and Treasury to have it excluded from counting towards the 1% cap on Cat-standard Isas. So far fund management groups have had no success. The SDRT issue has now extended to stakeholder when earlier this month Autif wrote to the DSS claiming the treatment of life products and non-life products such as investment funds should be on a level playing field and the DSS proposals will put non-life products at a disadvantage.
Even the arrival of pooled pension investment (PPI) vehicles is unlikely to alter the SDRT application to funds run by fund management groups as PPI is a wrapper while the tax applies to the fund. Most groups pay SDRT as an ongoing annual charge to the fund which comes it at around 0.1%pa, according to Adam Fairhead, product development director at Fleming Asset Management.
He added that under unit trusts and Oeics stamp duty is incurred because there is a change of beneficial and possibly legal ownership in the equity when it is redeemed or bought. However, with a life company both the beneficial and legal owner is the life company itself. Policyholders have a contract where the value is linked to the value of the underlying units so there is no stamp duty liability.
Alan Burton, chief executive Standard Life Investments, said: "The playing field is uneven so we will just have to become even more efficient in order to compete in this area and get our charges under the 1% cap."
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