In responses to the Financial Conduct Authority and Department for Work and Pensions’ call for evidence on transaction costs on workplace schemes, the National Association of Pension Funds and the Association of British Insurers said it is vital transaction cost disclosure is ‘meaningful’.
Napf said that while it recognises the importance of understanding the costs of buying and selling investments in securing value for money on behalf of scheme members, for many transaction costs there are currently no agreed definitions or methodologies.
It said many costs are inconsistently applied and therefore very difficult to quantify. Napf estimated that for a large scheme the cost of hiring a consultant to collate the data needed to complete the existing template could be in the region of £20,000 a year.
Graham Vidler, director of external affairs, said: “There are undoubtedly tangible benefits to be gained for scheme members from greater disclosure and there is a clear need for consistent and comparable information on transaction costs. But rushing to use an advanced template before the inconsistencies in data are addressed threatens to increase costs for schemes rather than reduce them.
“The Napf would like to see work start immediately on the easily measured costs and then allow time to build a sustainable and practicable reporting framework for the more intangible costs. We believe we can learn from countries like the Netherlands, which have made good progress in this area by adopting a similar approach to this problem.”
Mr Vidler added that Napf was calling on the FCA and DWP to bring together and oversee a working group from the pensions and investment sector charged with implementing a consistent framework for reporting across all asset classes and product structures.
A spokesperson for the ABI told FTAdviser that for pension savers to have confidence in the industry, “pension providers strongly support making transaction costs transparent, so that governance bodies can act upon this information”.
“It is vital that transaction cost disclosure is meaningful. Explicit costs should be disclosed as part of the framework.
“However, some implicit costs, such as missed trade opportunity costs, are both theoretical and very difficult to quantify. We therefore question the value of including them within the disclosure framework.”
Aegon said it supports the improved transparency of transaction costs and calls for aims to be clarified with independent governance committees and trustees to ensure a proportionate response.
Steven Cameron, regulatory strategy director at Aegon said: “It is trustees and IGCs who should decide on appropriate funds to offer members, so we support the initial focus on disclosing transaction costs to them.
“Of course, transaction cost information should also be available on request to pension scheme members and employers.
“We are keen that IGCs and trustees have an opportunity to discuss and clarify how they envisage using transaction cost information. We believe the focus should be on looking for trends, links between transaction costs and performance and for any ‘outliers’ that might suggest excessive charges or profiteering.”
Mr Cameron added that there may be disparities in passive and active funds’ transaction costs.
“For active funds, are transaction costs resulting from fund manager decisions enhancing performance? For passives, how do transaction cost levels compare to similar passive funds where different techniques might be used to track the market?
“Transaction costs are very unlikely to have as great an impact on member outcomes as investment performance or administration charges. We’re asking the DWP and FCA to avoid requiring excessive and un-needed accuracy which will increase implementation costs that customers will end up paying.
“We favour disclosing a simple aggregated transaction cost figure, accompanied by portfolio turnover information and importantly with contextual insights. IGCs or trustees can then ask for more detail if they have concerns.”
In March this year, the FCA and DWP announced that they were seeking views to feed into the next phase of work, and on how costs should be included in reporting. Transaction costs have currently been left outside the 0.75 per cent auto-enrolment pension scheme.
ruth.gillbe@ft.com
