Pension funds in Europe remain in limbo over the potentially damaging effects that a European financial transaction tax could have on their investments and participants' savings.
Fund executives had hoped that on May 6, when members of the Economic and Financial Affairs Council — part of the Council of the European Union — met to discuss progress on the effort, the result would be an exemption for pension funds from the tax. What they got instead was more uncertainty, sources say, and evidence of a dislocation within a group of 11 member states that have agreed to design, develop and implement the tax.
“The plan all along was that this ECOFIN (meeting) would be the occasion on which a revised (financial transaction tax) plan would be agreed,” said James Walsh, London-based policy lead, EU and international, at the National Association of Pension Funds. The May 6 meeting “was actually pretty illuminating. No such agreement has been reached, so it's clear that the 11 participating countries are still some way apart. (Our) view remains unchanged — the FTT is not the way to improve market behavior ... the (financial transaction tax) remains a threat to savers and pension scheme members,” he said.
First proposed by the European Commission in September 2011, the European FTT aims to “discourage financial transactions which do not contribute to the efficiency of financial markets or of the real economy,” according to the original text.
The proposal has been taken on by 11 member states under an “enhanced cooperation” agreement, under which Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovakia and Slovenia are now working to decide on the final details and implement the tax by Jan. 1, 2016.
As it stands, equities transactions will have a 0.1% charge, while derivatives will be subject to a 0.01% fee.
The effect on pension funds could be huge. With a tax on every part of an equity or derivatives trade that touches one of the cooperating European countries, the NAPF has in the past estimated the tax could cost European pension funds €4 billion ($5.6 billion) every year.
The hope had been that the group would decide to make pension funds exempt from the tax, as they have been in Italy and France, where FTTs were introduced in the past year.
But exemptions were not on the agenda.
“(The member states) are not discussing the issue yet,” said Julian Arevalo, Brussels-based legal adviser at PensionsEurope, which represents national associations of pension funds and similar institutions for workplace pensions, and about e3.5 trillion of assets.