FCA drops cost requirement for all contract-based funds

Contract-based schemes will only have to report on costs for the default funds in the first year, with the disclosure of charges being extended to the remaining arrangements in the following years.

The rules announced in a policy statement published on Tuesday will come into effect from April 2020, with independent governance committees and trustees having to present their first report on default funds by July 31 2021.

For all subsequent scheme governance years, they will be required to report the information for all of the investment options that members are able to select, the FCA stated.

The watchdog also clarified that providers will not be required to provide illustrations of the compounding effect of the aggregated charges for all the funds available to members, and instead a representative range can be used according to the provider’s discretion.

This consultation was the result of recommendations made by the Office of Fair Trading in 2013 – which concluded that competition alone would not drive value for money for all savers in that market.

Since then, the regulator has been working with the Department for Work and Pensions to design and implement a package of reform measures in this area.

Steven Cameron, pensions director at Aegon, said: “While the FCA, like the DWP, has a duty to require cost and charges disclosure, it is far from clear how many members will take an interest in these new disclosures.

“With this in mind, it seems reasonable to focus first on charges and costs within default funds.

He added: “We also welcome confirmation that the IGC chair’s report doesn’t need to list costs and charges for every fund, which could have led to very lengthy and unwieldy reports.

“For the same reason, we welcome allowing a representative range of illustrations of the compounding effect of such charges.”