FCA proposes measures to ‘strengthen transparency’ of costs and charges in IGCs

Kim Kaveh reports...

The Financial Conduct Authority (FCA) has launched a consultation setting out proposed rules that would require contract-based schemes to disclose costs and charges to members.

The consultation document – published today (28 February) – said this will include administration charges and transaction costs, and applies to those who are involved in FCA-regulated defined contribution (DC) schemes. These includes independent governance committees (IGCs), pension providers and asset managers.

It comes amid concerns that it is there is a lack of transparency on charges, with transaction costs hard to pin down.  The FCA said it is seeking to strengthen transparency and scrutiny on costs “which in turn should result in efforts to reduce costs by pension providers”.

The financial watchdog has suggested measures which include requiring schemes to include an illustration of the compounding effect of aggregated costs, and to publish costs and charges information, free of charge, on a public website.

The FCA has also proposed a charge cap on default funds and a ban of certain charging practices, as well as measures to improve how asset managers disclose costs and charges.

The rules are an attempt to mirror those introduced by the Department for Work and Pensions (DWP) and enforced by The Pensions Regulator (TPR) on trust-based schemes. Since last year, such schemes, including master trusts, have been required to disclose investment costs, including their compound effect.

However, it noted that structural differences of the schemes and regulatory regimes mean that it would not be “appropriate or feasible to duplicate the DWP’s regulations”.

The proposals are designed to “improve the quality of information available to pension scheme members and allow workplace pension schemes to be better held to account by their members”. The consultation closes on 28 May.

Transaction cost disclosure has been at the forefront of industry debate for several years. For example, IGCs struggled to get all the information from some managers, as seen in last year’s reports.

This is despite rules which came into force last January requiring asset managers to supply information about transaction costs when requested by their clients.

The FCA is also expected to launch a separate consultation later this quarter, through which IGCs may see their remit expanded to include reporting on environmental, social and governance issues.