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92/01
27
July 2001
GOVERNMENT
SETS OUT WAY FORWARD FOR PENSION FUNDS’ TRANSACTION COSTS
Click
here for the full statement
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.
Notes To Editors
- The
Myners review was commissioned by the Chancellor of the Exchequer,
Gordon Brown, in the 2000 Budget (Budget 2000 press release HMT1)
to investigate whether there were distortions in investment decision-making
by institutional investors such as pension funds and insurance companies.
It reported in March 2001 (Treasury press notice 29/01. The
report may be accessed through a link from the press notice on the
Treasury website or from the Treasury Public Enquiry Unit on 020
7270 4558). In the 2001 Budget (speech of 7 March and the accompanying
Economic and Fiscal Strategy Report ‘Budget 2001 Investing for
the Long Term: Building Opportunity and Prosperity for All’),
the Chancellor announced that the Government would be taking forward
all the Myners recommendations.
- On
broking commissions, the Myners review recommended that the cost
of these should be met by the fund manager, rather than by the pension
fund, as at present. This recommendation was part of a set of principles
of investment which the review suggested pension funds should voluntarily
disclose their compliance against.
- The
Government held a consultation on the principles (Treasury press
notice 34/01) which ended in June. Approximately 120 responses
to the consultation were received.
- A
Government statement on broking commissions, published today, is
available on this website. Click
here
- This
and other Treasury press notices are available on the Treasury website.
- Media
enquiries should be addressed to Liane Farrer, Treasury Press Office,
tel 020 7270 5192.
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