Mark Jaffray, Head of DC Investment Consultancy comments:

“Placing a duty on fund managers and product providers to collate and supply information on transaction costs is essential to completing the annual governance statements by the Chairs of Trustees of occupational DC pension schemes (including Master Trusts) and provider’s Independent Governance Committees (IGCs). As most scheme members are in a default arrangements, it is right that disclosure should focus on supplying information to Trustees and IGCs, as most members will rely on them look after their interests in this area.

“The “slippage cost” approach strikes a fair balance between capturing transaction costs and excessive complication, although some further refinement of the proposals is needed, particularly for investments in property. We also need to remember that bond markets lack the transparency of equity markets. Further guidance on the format in which transaction costs and its constituents are presented would be desirable, particularly to ensure consistent disclosure in Chairs’ annual governance statements.

“Nevertheless, for many DC members the impact of bid-offer spreads on the unit pricing of “single-swinging” priced funds, which are widely used in UK DC schemes, will be more significant than slippage costs at an underlying fund portfolio level. So, we believe that there is also a need for more disclosure of hidden entry/exit costs, such as bid-offer spreads, and the operation of single-swinging priced funds to both Trustees/IGCs and members.”