HISTORIC PRESS RELEASE : Government sets out way forward for Pension Funds’ Transaction Costs [July 2001]

The press release issued by HM Treasury on 27 July 2001.

HM Treasury today set out proposals to bring clarity and accountability to the payment of broking services by pension funds and other investors.

The proposals are:

• The Government has set out objectives for how the market needs to change. Progress towards these will be reviewed in two years? time.
• Under amended Myners principles of investment, pension funds will have to understand and manage pension fund costs better, and soft commission arrangements will be tackled.
• Paul Myners will be asked to develop a set of questions to assist pension fund trustees in requiring better disclosure and clearer incentives for their managers and brokers.
• The FSA study of Best Execution will be widened to examine soft commission and the bundling of services provided by brokers.

Announcing the proposals today Ruth Kelly, Economic Secretary said:

“The challenge for the industry is to develop much clearer structures and incentives. The Government hopes this can continue to be achieved on a voluntary basis. But, if in two years time, there remain competition concerns, the Government will consider what further action is necessary to ensure that a sufficiently competitive environment exists.”

The Government will publish its final response to the Myners review in September, together with a revised set of principles of investment. This revised set will include the following amendment in place of the final sentence of principle 6:

Trustees, or those to whom they have delegated the task, should have a full understanding of the transaction-related costs they incur, including commissions.  They should understand all the options open to them in respect of these costs, and should have an active strategy – whether through direct financial incentives or otherwise – for ensuring that these costs are properly controlled without jeopardising the fund’s other objectives.

Pension funds should not without good reason permit ‘soft’ commissions to be paid in respect of their transactions.