The Financial Conduct Authority (FCA) has launched a consultation on new rules requiring workplace pension governance bodies to disclose cost and charge information to members on an ongoing basis in order to be compliant with the Pensions Act 2014.
The consultation, which will close on 28 May 2019, will set out revised rules and guidance on the publishing and disclosing of administration charges and transaction cost information by pension scheme governance bodies to members of workplace pension schemes.
It will further suggest amendments to the FCA’s Conduct of Business Sourcebook (COBS), based on the feedback received.
Rona Train, partner at Hymans Robertson, said: “[This] consultation from the FCA is an important step forward in levelling the playing field between trust and contract-based arrangements. Requiring the disclosure of costs and charges for all [defined contribution] arrangements makes comparisons across products more simple.
“However, what we really need to see in addition to this is full disclosure of the way bundled charges are made up. For example, how much is attributable to investment fees, platform charges and administration costs? This would be a welcome advancement in the move towards greater transparency.”
Under the Pensions Act 2014, the FCA is required to consider the Department for Work and Pensions’ (DWP) regulations around publishing and disclosing cost and charge information for relevant schemes, such as FCA-regulated workplace pension schemes, when creating its own rules.
Since 3 January 2018, the FCA has required asset managers to report transaction costs and other charges to the operator, trustee or manager of workplace pension schemes. The consultation, therefore, proposes new rules that will oblige pension scheme governance bodies to disclose this information to pension members on an ongoing basis.
The consultation will affect those involved in FCA-regulated, defined contribution (DC) workplace pension schemes. This includes pension providers and asset managers, the governance bodies of pension schemes and their advisers, scheme members and their advisers and consumer representative groups.
Steven Cameron, pensions director at Aegon, added: “The FCA’s consultation on giving workplace pension members access to more information on costs and charges, including fund transaction costs, follows on from rules already set by the DWP for members of trust-based schemes. In future, more individuals will access this information, making it essential that it is calculated in a consistent and meaningful way and presented carefully in a context that allows those individual to make an informed decision.
“As other FCA findings show, there are still challenges around consistency. And while FCA is consulting on changes to avoid distortions created when funds apply anti-dilution mechanisms, there are other aspects of the prescribed ‘slippage cost’ methodology that can produce odd results including negative transaction costs.
“As well as making sure the calculation methodology is robust, it is essential that the information is presented in context. Making information available that could be misinterpreted and prompt unwise behaviour is dangerous. For example, individuals need to be helped to understand that transaction costs are an essential part of investing. Higher transaction costs are not necessarily something to avoid; if they produce better returns, that can be in the individual’s interest.”