Pension Funds - US equities

J

John7675

Registered User
Messages
8
Hi All,

Would anybody know if Pension funds that invest in units are subject to Dividend withholding tax of 15% on distributions within the fund on US equities the same way normal US share dividend distributions are?

I am aware pensions are personally tax deferred until retirement age, but my understanding is that taxation rules in the US don't care what investment vehicle is used, there all subject to DWT on distributions,

Be great to get clarity on this as anybody I talked doesn't seem to know,

Thanks,
John
 
Hi John

Interesting question - hadn't thought of this before.

A fund manager should know for sure but here is a UK linked article which suggests that UK SIPPs are exempt if the Fund manager does the necessary paperwork. So maybe irish pension funds are in the same position?

"The standard WHT on US dividends is 30%. This is reduced to 15% under the UK-US DTA, which is the rate that will apply whether you hold US stocks outside or inside an ISA. But if you hold them in a SIPP and your SIPP adminstrator is thorough enough, you can get them paid gross of all tax."

https://the-international-investor....im-withholding-tax-foreign-dividends-isa-sipp
 
Hi Dave,

Very informative article thank you. It would be great to have this article translated into the Irish Market.

Just to add some background to the original question I am trying to begin my pension fund by investing in a low cost index fund. The only way in Ireland seems to be a PRSA account through a broker to a ETF that tracks an index and wait till I hit €100K in the fund before I can access vanguard funds.
 
Last edited:
This is a really good question.

The easiest way to think about it is where the fund is domiciled.

An Irish fund has access to the Irish US DTA which means the DWT is cut to 15%.

A Lux based fund does not have access to a DTA so the fund suffers tax at 30%.

All things being equal, invest in a Dublin based fund (ISIN begins IE) investing in US equities.
 
1dave123 said:
here is a UK linked article which suggests that UK SIPPs are exempt if the Fund manager does the necessary paperwork. So maybe irish pension funds are in the same position?
Click to expand...
I'm afraid not.

The UK/US DTA allows UK pension schemes (including SIPPs) to receive dividends from US companies with no withholding. The Ireland/US DTA doesn't contain a similar provision.
 
Hi Sarenco,

Just to for the avoidance of doubt - can Irish funds claim back the tax with-held by the US?
 
Thanks Sarenco,

So when we talk about tax exempt growth in pension funds, this should be a qualified statement? (I'm pretty sure I've seen statements like "all the growth and income within a pension fund is tax exempt and that tax only applies on the income taken from the pension fund, etc.")

Is there an easy way to understand what taxes apply to pension funds? Is it just DWT that is non-reclaimable from certain countries and which significant stock markets are Irish funds unable to claim back the DWT?

A lot of questions......so if it's easier - any link to a useful site would be equally great!
 
Well, it's true to say that all growth and income is tax exempt within a pension fund.

But countries can and do apply withholding taxes on dividend payments made by companies domiciled in their jurisdiction. They can also tax the profits of portfolio companies, apply sales taxes to products sold by those companies, apply stamp duty to purchases of securities issued by those companies, etc. You can't claim back those taxes either.

What funds can do is reclaim any withholding taxes over and above those provided for in any relevant DTA.
 
Thanks for confirming Sarenco :)

Marc - I will be investing in Dublin based low cost allocating ETF's that track particular index's that cover large areas of the stock and bond markets, Bogleheads style all the way.

"Don't look for the needle in the haystack. Just buy the haystack." - John Bogle
 
Last edited:
John7675 said:
I will be investing in Dublin based low cost allocating ETF's that track particular index's that cover large areas of the stock and bond markets,
Click to expand...
If you find a cost effective way of doing that within a pension wrapper please be sure to let us know.

I've looked into this a few times but I've always been put off by the cost of the wrapper - best I can find is 75bps. Add that to the cost of the ETFs and I struggle to see the cost advantage over a unit linked product.
 
Last edited:
That's one i'm thinking of going with (Davy PRSA Execution Only)

Yeah 75bps annual fund charge is excessive for indexing compared to whats offered in the US market, but its the best we have for offer in ROI. And the contribution charge is 0%,foreign transaction fee is 0.1% and €25 for foreign investments made per trade.

In my opinion this is far superior to the rates offered by say Zurich/Irish life of standard contribution fees of 5% with annual charges on funds of 1% plus they wont disclose their TER ratio. The TER ratio for example on iShares S&P 500 EUR Hedged UCITS ETF (Acc) is 0.2%. Estimated TER's on managed funds are estimated to be closer to 3%.

Do you mind me asking what wrapper and product your currently using Serenco?
 
Last edited:
Well you can can access a PRSA with Irish Life or Zurich through various discount brokers on a zero commission basis and invest in passive funds with an AMC of 1%.

Zurich and Friends also have low AMC offerings - from as low as 40bps.

I do appreciate that an AMC is not the same thing as a TER/OFC.

I'm not saying there is anything wrong with the Davy offering but I struggle to see how it is much of an improvement on life company offerings from a cost perspective. Throw counterparty risk into the mix and I remain to be convinced of its merits.
 
The ITC/ Conexim PRSA starts at 0.5% AMC plus the cost of the fund you want to invest in. They use Pershing Securities as the custodian account which cancels out the counterparty risk that you may be worried about.

Life companies are opening up, slightly about the costs of funds. From what I have seen, the additional charges are between 0.1% - 0.15% more than the AMC that you are currently being charged. If a fund is more expensive e.g Standard Life GARS, the additional charge is reflected in the declared AMC +0.35%. One of the reasons I have been told for their secrecy is they do not want to disclose to the competition any deals that they have with fund managers.

The 5% contribution charge on PRSA's can be easily avoided by paying a fee to set up the product. You can get the AMC down by being on a nil commission contract too (you see what these charges are paying for..)

There is a cost of running a product provider, especially a PRSA which has very high reporting requirements, but you can reduce them. And remember, in the US, the standard broker fee is 1% of assets plus the platform fee.



Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
Hi Steven,

The ITC/ Conexim PRSA at 0.5% AMC is the best on the market to investors with over €30K already in their fund. Otherwise Davy is the best option starting from scratch with .75% AMC plus ETF fund fees. Friends First offer access to ETF's at 1% AMC inclusive of ETF fees also, but I have found better diversity with Davy for fund selection,

Thank you for your input,

John
 
John7675 said:
Hi Steven,

The ITC/ Conexim PRSA at 0.5% AMC is the best on the market to investors with over €30K already in their fund. Otherwise Davy is the best option starting from scratch with .75% AMC plus ETF fund fees. Friends First offer access to ETF's at 1% AMC inclusive of ETF fees also, but I have found better diversity with Davy for fund selection,

Thank you for your input,

John
Click to expand...

If you're eligible for a personal pension, why not look at that instead of a PRSA? New Ireland have contracts at 0.5% AMC. There is a policy fee of €4.50 also (not suitable for small premiums). You're obviously limited to their suite of unit linked funds but again, it is cheaper than a PRSA.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
You must log in or register to reply here.
Back
Top