CIPFA Pensions Panel Guide to Pension Fund Taxation in the United Kingdom

The world of the Local Government Pension Scheme (LGPS) is constantly evolving and it is crucial to maintaining the high standards of governance that the LGPS has attained that members and practitioners alike keep all aspects of fund administration on their radar, even those areas which in the past may have warranted little attention.

One such area is the impact of taxation on the pension fund. Going back 10–20 years, pension fund investments were different: less spread both geographically and within a set of assets. As such there were generally fewer tax issues for funds to consider.

However it is now more common for pension funds to have investments in overseas equities, property and alternative investments such as hedge funds, infrastructure, commodities and private equity. This diversification of investment brings with it new tax regimes or investment structures to understand, and tax costs and compliance requirements. Pension fund managers and administrators need to manage these issues in order to mitigate tax risks, manage compliance and maximise post-tax returns from investments, including optimising cash flow into the fund.

Managed effectively, tax can add value to pension funds. Conversely for the unwary, there are both domestic and non-UK tax compliance requirements which pension funds may need to manage. Consequently managing tax risks and keeping them under continual review is a key responsibility for each fund and the importance of specialist advice cannot be over-emphasised.

This guidance covers some of the tax issues which are likely to arise across a range of pension fund investments, and is a useful addition to the suite of CIPFA guidance that sits in support of the recently published CIPFA Pensions Finance Knowledge and Skills Framework.

This publication is available as a book and bookmarked PDF.