Standard Life Plc : Standard Life offers investors tax saving by adding Vanguard's US Equity Index CCF

26 January 2012
Standard Life offers investors tax saving by adding Vanguard's US Equity Index CCF

• Vanguard's US Equity Index Common Contractual Fund added to Standard Life's pension platform
• The fund offers significant tax advantages to qualifying pension funds
• Standard Life the first provider to make the fund available to UK corporate and retail pension customers

1 has become the first provider to add Vanguard's US Equity Index Common Contractual Fund2 to its pension platform. The new fund, launched by 3 in December 2011, is available to both retail and corporate pension fund customers and offers significant tax advantages.

Currently, qualifying pension funds investing in US equity mutual funds (unit trusts, open ended investment companies and similar categories of regulated vehicles) are impacted by 15% withholding tax if the fund is domiciled in the UK or 30% withholding tax if it is domiciled in Ireland. This level of taxation can have a significant impact upon the ultimate pension pot available to fund retirement for individuals.

The CCF permits qualifying investors to achieve the same tax treatment as if they invested in the underlying securities directly. As a result, dividend withholding taxes on US equities may be eliminated ensuring that qualifying investors receive all of the treaty which is due.

"An investor could achieve a higher after-tax investment return with a CCF vehicle than an equivalent mutual fund," says Graham Dow, Head of Investment Groups' Strategy & Insight. "The CCF is a solution which combines the tax-efficient nature of separate accounts with the economies of scale, diversification, corporate governance and cost savings benefits of pooled vehicles."

"Pension schemes expend considerable effort to find the lowest total expense ratio (TER) fund mandate but shopping for price alone can be self defeating if they don't take account of the tax drag, which can obliterate a perceived cost advantage," comments Nick Blake, Head of Retail at Vanguard. "Indeed, the tax drag can be up to £30,000 on a £10m US equity fund domiciled in the UK and up to £60,000 on a US equity fund domiciled in Ireland4."

Ends

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Notes to Editors

1. About Standard Life - Established in 1825, Standard Life is a leading provider of long term savings and investments to around 6 million customers worldwide. Headquartered in Edinburgh, Standard Life has around 9,000 employees across the UK, Canada, Ireland, Germany, Austria, India, USA, Hong Kong and mainland China.
2. The Vanguard CCF is an open-ended contractual arrangement, domiciled in Ireland and established under UCITS III guidelines. It offers specific tax advantages to certain types of institutional clients, including defined-contribution and defined benefit pension funds.
3. About Vanguard (wording provided by Vanguard) - Vanguard Asset Management UK, Limited is authorised and regulated in the UK by the Financial Services Authority. It is a wholly owned subsidiary of The Vanguard Group Inc., a leading provider of high-value investment services, whose mission is to help clients achieve their goals by being the world's highest value provider of investment products and services. Since establishing the first indexed mutual fund in the US in 1976, Vanguard has grown into one of the world's largest and most respected investment management companies. Vanguard manages over US $1.8 trillion in assets and serves more than 23 million individual and institutional accounts worldwide.
4. The calculation of the tax drag makes the following assumptions:
   • On average over the past 10 years the yield on the S&P 500 Index has been 2.037%. Source: Bloomberg. To simplify the calculations, we have rounded this to 2.0% for our example
   • Irish domiciled mutual funds (unit trusts, open ended investment companies and similar categories of regulated vehicles) are assessed at 30% withholding tax on US stock dividends
   • UK domiciled mutual funds (unit trusts, open ended investment companies and similar categories of regulated vehicles) are assessed at 15% withholding tax on US stock dividends
   Worked example:
   • We have assumed a £10,000,000 holding in US equities. If these yield 2% as per above, the before tax dividends paid would be £200,000p.a.. These dividends would be taxed at 30% for Irish domiciled mutual funds resulting in a £60,000 tax drag per year
   • If the same £10,000,000 US equities were held in a UK domiciled mutual fund, these dividends would be taxed at 15% resulting in a £30,000 tax drag per year
   • Based on tax rules as at January 2012
5. As with all investments, the value of the investments can go down as well as up and may be worth less than originally invested.