Its response to the DWP/FCA call for evidence on ‘Transaction Costs Disclosure: Improving Transparency in Workplace Pensions’ says templates provided by consultancy Novarca – within research published alongside the consultation – are too ambitious for the first stage of transaction cost reporting because the costs capturing, analysing and managing all types of transaction costs would be too great.
The NAPF says that for large schemes, hiring a consultant to collate the data could cost in the region of £20,000 a year.
The NAPF calls for a step-by-step approach to be taken, with the first tranche of reporting only including quantifiable, explicit costs.
It calls for an industry body to be established to help capture implicit costs such as spreads.
The NAPF wants additional disclosure requirements to be placed on asset managers to enable FCA to intervene if they fail to properly provide data to trustees and other fund managers. It argues this would help safeguard the quality and consistency of the data disclosed and enables trustees and IGCs to do the job they have been tasked to do. This would also have the added advantage of allowing data to be used by clients of the wider investment management industry.
It argues templates for transaction cost disclosure should be developed with DB schemes, and the wider non-pension industry, in mind. The definitions and templates for transaction cost disclosure should be workable for all funded DB and DC workplace pension schemes and for use by wider purchasers of investment management services, it says. The NAPF says that while additional reporting requirements should not be implemented, the principle of extending this disclosure to funded DB schemes in the future should not be ruled out.
The NAPF also says that transaction costs should not be included in the charge cap following the planned review in 2017. Capping transaction costs, either by including them in the charge cap or by introducing a separate cap, could incentivise perverse behaviour and be detrimental to scheme members’ interests.
NAPF director of external affairs Graham Vidler says: “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.
“We call 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.”
