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FCA forces pension transaction cost disclosure

Fund managers and investment companies will have to disclose all transaction costs on workplace pensions from 3 January next year.

New rules set out by the FCA will effectively mean those running defined contribution pensions have to comply with Mifid II and Priips legislation. These require investment companies to disclose indirect charges – such as transaction costs – and publish aggregate costs to give a clearer picture of the total fees charged.

The new rules are set out in a policy statement published today.

The FCA says firms managing money on behalf of DC pensions will be obliged to give details of both administration and transaction costs to pension governance bodies.

The FCA says these new rules will strengthen these governance bodies, by giving them the ability to obtain information about hidden costs.

The paper reads: “[This] will enable these governance bodies to meet their existing requirements to review transactional costs and ensure whether they represent value for money.”

The FCA has set out the method for calculating these transaction costs, which is in line with Priips regulations. It says this ensures consistency with fund managers’ other European obligations.

However, the FCA is currently consulting with the Department for Work on Pensions on proposals as to how these costs and charges should be published and disclosed to scheme members.

The FCA said its previous report into the competition in the asset management sector concluded that investors’ awareness and focus on charges is mixed and often poor. It also found that costs which are complex or costly for the asset manager to control, such as transaction costs, are not controlled as effectively as other costs.

FCA sets out reform package for asset management sector

The regulator says when formulating these rules, it had received 43 written responses from industry bodies, investment firms, pension scheme governance bodies and consumer representatives.

It says from this consultation exercise showed there was “widespread support” for the approach it is proposing, particularly in relation to asset managers being obliged to respond to requests for more detailed information about costs.

However, the FCA notes that there is disagreement on its proposed methodology for calculating these transaction costs. It says while it believes its “original analysis” is still appropriate it has made “some further clarifications” around particular points raised by respondents.

This policy statement has been broadly welcomed by the industry, as a step to increasing transparency around fees on workplace pensions, enabling firms to ensure the schemes offered deliver value for money for employees.

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