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UK roundup: DWP and FCA on charges, JLT on DB deficits

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The UK government and financial services regulator have launched a consultation to study how to report on transaction costs in pension funds.

A joint consultation between the Department for Work & Pensions (DWP) and the Financial Conduct Authority (FCA) said it was seeking views on how information about transaction costs should be reported in a standard and comparable format.

The consultation comes as trustees of DC pension funds and independent governance committee members for insurance-based schemes prepare to start reporting on cost and charges incurred by members in the managing of pension pots.

Such legislation ties in with the 75 basis point charge cap on auto-enrolment DC default investment funds, coming into force on 6 April.

The charge cap relates to member-borne charges but does not currently include transaction costs due to complexity.

The government said it would review the cap to include transactions, or reduce the cap, in 2017.

Christopher Woolard, director of strategy at the FCA, said trustees and independent governance committee members needed visibility on transactions to assess value for money.

“We want clarity and consistency across the market, and that is why we are asking for views on how costs and charges information should be disclosed,” he added.

Pensions minister Steve Webb said pension scheme trustees need visibility on direct and indirect charges.

“There is a fear the dark corners of the investment and pensions industry hold some nasty surprises,” he said.

“We have a duty to throw light for the first time on potential hidden charges.”

The consultation comes as the FCA and DWP also finalised and published the rules surrounding the charge cap.

It also outlaws both insurance and trust-based pension providers paying consultancy charges and commission for advice not agreed to by scheme members.

Providers will also no longer be able to operate active member discounts, the policy of charging additional fees on deferred or non-contributory members.

Elsewhere, the defined benefit (DB) deficit among UK private sector schemes has increased by more than 60% over the year to the end of February 2015, as tumbling Gilt yields added almost £220bn (€303bn) to liabilities.

The IAS 19-calculated figures, from consultancy JLT Employee Benefits, showed that, while assets increased by 11% to £1.27trn, liabilities offset this with a 17% increase to £1.53trn.

The deficit among private sector schemes now stands at £255bn, with an average funding ratio of 83%, compared with 88% at the end of February 2014.

JLT said the tumbling yields in the UK, alongside negative yields spreading from Switzerland across the euro-zone, were putting huge pressure on the pension schemes.

Charles Cowling, director of JLT Employee Benefits, said: “The even lower interest rates we now see in the UK could prove particularly problematic for pension schemes with actuarial valuations in 2015 – typically, the actuarial valuation takes place every three years, and this is when decisions are made on deficit funding.

“Demands from pension scheme trustees for more cash payments into DB pensions look set for significant escalation in 2015.”

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