The Financial Conduct Authority (FCA) has met some of the industry's concerns about its proposed new costs and charges regime for workplace pension schemes and agreed to restrict the new rules to default funds in the first year.
In a policy statement, published today (February 4), the FCA confirmed that its new rules surrounding the disclosure of costs and charges information on workplace pensions will be phased in gradually after admitting its implementation timetable was “very challenging”.
The rules come into effect from April 2020, but from January 1 to December 31, 2020, governance bodies, such as Independent Governance Committees and trustees, will only have to report on default funds, with a publication deadline of July 31, 2021.
For all subsequent years information must be provided on all the investment options pension members are able to select.
Under the new rules the bodies will need to publish the costs and charges imposed on scheme members, including an illustration of the compounding effect of the aggregated costs and charges, free of charge at least yearly.
They will also need to ensure all scheme members get an annual communication which includes a brief description of the most recent costs and charges information available and how it can be accessed.
But following industry concern about the volume of information the FCA clarified the so-called Chair’s Statement will only have to include costs and charges for default funds.
The Chair’s Statement is the document in which the defined contribution scheme trustees explain the actions they have taken to comply with certain obligations.
The FCA has also amended its Conduct of Business Sourcebook to clarify that IGCs “must ensure that information is communicated in a way that considers how members might reasonably use it”.
This came after some respondents argued the huge volume of data they would have to disclose would be difficult for members to fully digest and could cause inertia.
The FCA said it does not require illustrations for all available funds or options. "A representative range of funds/options can be provided," it said.
Respondents also raised concerns over how much the new rules would cost, saying the regulator had underestimated the cost related to updating systems.
The FCA stated: “While we acknowledge that many respondents said we had underestimated the direct costs of our proposals, they did not, for example, identify types of cost which we had omitted, or provide alternative estimates.”
In its response to the consultation, which closed in May 2019, Scottish Widows had said fee disclosure should be done as an appendix to the main report and the number of funds which are presented should be kept to a minimum so as to not overwhelm consumers.
At the time Pete Glancy, head of policy at Scottish Widows, said there was a risk consumers could be bombarded with information as the provider has about 40,000 funds available to consumers, both the ones it has created and the ones it administers as a bespoke solution for specific employers and their advisers.