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Deciphering the govt's charges disclosure call

By Lisa Botter | February 24, 2014

The government has today tabled an amendment to the pensions bill which will call for pension providers to disclose transaction costs of defined contribution schemes.

In a written ministerial statement, pensions minister Steve Webb said:

Ministerial statement

Source: DWP

In its investigation of the DC market released last year, the Office of Fair Trading had stated it was concerned about the inability to compare charges of different pension providers. The report stated: "But all providers include all investment management service charges and expenses within their annual management charge."

The watchdog also raised concerns about the lack of "definition and visibility" of investment management transaction costs.

Transaction cost conflict of interest

Source: OFT

The OFT called for disclosure of transaction costs and for independent scheme governance to ensure conflicts are managed.  

However, it went on to state the charges should not be included in its recommended comparable single charge.

In its view "their inclusion could potentially create incentives for investment managers to avoid carrying out transactions in order to keep costs down, even where this is contrary to the member's interest".

The shadow pensions minister applauded the amendment:

  

A deadline for the proposed charges cap has also been tabled:

 

 

Use of additional services

The DWP's latest survey of 1,321 DC plans and providers, released last week, gave a comprehensive overview of charges at UK pension funds.

Here are how the charges are broken down across trust and contract-based schemes:

 

The survey also found almost half (45 per cent) of trust-based schemes used one or more additional services, with larger schemes more likely to use a wider range.

"Where employers with trust-based schemes did pay for additional services, they spent an average of £300 per member," the survey stated. "Almost all employers claimed that such fees were never passed onto members."

 
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