Pension Funds

(asked on 18th June 2018) - View Source

Question to the HM Treasury:

To ask Her Majesty's Government whether they will instruct regulatory authorities to provide investors and pension holders with full guidance about costs, understanding performance, risks and returns, and the impact of different compensation structures.


Answered by
Lord Bates Portrait
Lord Bates
This question was answered on 2nd July 2018

Since 2015, trustees of defined contribution occupational pension schemes (as well as Independent Governance Committees of workplace personal pensions) have had a duty to assess and report on the costs and charges borne by members and the performance of the default fund.

As part of that work, The Pensions Regulator have produced Code of Practice 13 which relates to the Governance and administration of occupational trust-based schemes which provide money purchase benefits and accompanying guidance on investment governance and value for members.

This guidance is intended to assist trustees of DC pension schemes overseeing investments, and enable them to satisfy themselves that beneficiaries are receiving value for money.

Earlier this year, the FCA introduced new rules for investment managers that provide services to occupational and workplace personal defined contribution schemes, requiring them to disclose investment management charges and transaction costs on request to trustees and Independent Governance Committees. The DWP made regulations to require defined contribution scheme trustees to publish costs and charges borne by members, alongside an illustration of the impact of those costs and charges over time. Trustees must have regard to statutory guidance produced by DWP, in creating and publishing those illustrations. The FCA will consult on equivalent provisions for workplace personal pensions in due course.

In defined benefit schemes, it is the employer who bears the cost of the scheme. The Government’s White Paper, ‘Protecting Defined Benefit Pensions’, committed DWP to work with The Pensions Regulator and other parties to consider what more could be done to promote greater transparency of costs and charges in defined benefit schemes to help drive efficiencies.

The FCA also conducted a detailed Market Study into the Asset Management sector, which examined the relationship between asset management fees and performance. The FCA found some evidence of a negative relationship between net returns and charges. In response to these findings, and to increase overall competition in the sector, the FCA devised a package of remedies. Firstly, they strengthened the duty on fund managers to act in the best interests of investors. Secondly, they introduced a requirement of fund managers to assess whether the charges taken from a fund are justified in the context of the overall value provided by the fund. Thirdly, they introduced requirements to ensure fee transparency and lastly, they formed a working group tasked to consider how to make fund objectives as clear as possible.

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