Financial Conduct Authority consults on transaction cost disclosure for workplace pensions

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The Financial Conduct Authority (FCA) has launched a consultation around proposals for standardising the procedure for disclosing transaction costs in workplace pension schemes.

Its proposed guidance suggests that asset managers should be subject to the same transaction cost reporting structures as independent governance committees (IGCs) and trustees, ensuring a consistency of approach when publishing and assessing pension scheme transaction costs.

Under proposals set out under the consultation, asset managers will also be required to provide a breakdown of costs into identifiable categories, such as taxes or securities tending costs. Transaction costs can include costs surrounding member contributions or members leaving their pension scheme; costs incurred by members switching funds or costs regarding switching activity.

To calculate and evaluate costs, the FCA has recommended a slippage approach which compares the actual price of the asset to the value of the asset immediately before the order to transact entered the market.

The consultation will close on 4 January 2017.

Christopher Woolard, executive director of strategy and competition at the FCA, said: “IGCs are already seeking to make pension schemes work better for their members. The proposals will allow IGCs to see fully the transaction costs that their funds pay and enable them to make better decisions about how they get value for money for their members.”

Nathan Long, senior pension analyst at Hargreaves Lansdown, added: “If implemented, these rules will promote transparency within workplace pensions and may ultimately act to reduce some costs from fund management.”

Jacqui Reid, associate director at law firm Sackers, said: “Both the FCA and [Department for Work and Pensions] DWP already specifically require trustees and IGCs to assess and report on charges, including where possible, transaction costs. However, without any corresponding duty on managers to disclose the relevant information to trustees and IGCs, most are unable to access such information. It is great to see that the FCA is now taking steps to address this issue and provide some much needed clarity around costs. That is very much a step in the right direction.

“However, while it acknowledges the importance of a standardised approach to calculation, the FCA is not proposing a standard format for disclosure. There is a balance to be struck between a form of disclosure that is meaningful enough for useful and direct comparisons across the market, but not difficult to decipher and ineffective and costly for managers to implement.”