The disclosure and provision of the full breakdown of costs and charges, including the elements that make-up transaction costs for all funds offered to workplace customers, is a new regulatory requirement.
These costs and charges aren’t new, and you’ll already be paying them in respect of the funds you’re invested in. What we’re providing is a greater level of detail on the costs and charges.
Each table on the costs and charges webpage has a column titled ‘Total Fund Costs’ – this represents the full amount of costs and charges you’ll pay for that fund.
The Total Fund Costs are the sum of:
Fund Annual Management Charge – where this is not included in the Representative Product Charge (RPC)
Fund Annual Management Charge – where this is not included in the Representative Product Charge (RPC)
+
Annual Additional Expenses
+
Sub-total of Transaction Costs
=
Total Fund Costs
It’s the Total Fund Cost that you can use when assessing the costs and charges of the investments you hold.
When selecting a fund you can see the Fund Annual Management Charge you’ll pay. This is set for each fund within your product range and will be known in advance of investing. It’s the cost of managing your funds, and the charge will depend on the investments you select.
In addition to the Fund Annual Management Charge, you’ll pay your share of any Annual Additional Expenses for the fund you select.
These expenses are calculated each year to cover costs like trading fees, legal fees, auditor fees, and other operational expenses.
All funds have transaction costs because fund managers need to buy and sell investments when money comes into, or out of, the fund and, also to implement investment decisions.
These costs are influenced by a number of factors including:
- The type of investment that the fund holds. For example, fixed income securities and cash typically have lower costs than stocks and other types of investment.
- How frequently the fund manager tends to buy and sell the underlying investments. Active funds will tend to trade more frequently than passive funds.
- The fund’s overall objective. Typically, those with a higher performance target will trade more often. Transaction costs are paid from the fund, so directly impact the net return you receive.
Transaction costs are incurred, for example, by funds when shares and company bonds fund managers have invested in, are bought and sold.
We’ve highlighted the costs you need to know about and what they mean.
1. Explicit costs
This is where a known monetary amount is paid when the fund buys and sells investments and are in two categories:
- Taxes – transaction taxes such as Stamp Duty.
- Fees and charges – broker commissions, dealing fees and other explicit non-tax transaction costs.
2. Implicit costs
This is the difference between the price of an investment before an order is placed, and the actual price when the trade is executed. This difference is known as ‘slippage’. Implicit costs can be positive or negative.
3. Indirect costs
These are typically costs incurred when a fund invests in other funds (known as sub-components) and reflects the transaction costs of those sub-components.
4. Securities lending and borrowing costs
These are costs associated with lending, or borrowing, underlying assets in a fund. For example, financing costs on borrowing, non-financing stock lending and borrowing costs.
5. Anti-dilution offset
When there’s a large purchase, or sale of a holding to meet investor instructions, this can lead to transaction costs paid by all investors in the fund. Rather than just an investor whose instructions necessitated the trading, an anti-dilution offset reduces the effects of such trading for all investors in the fund.
The transaction costs disclosed are not a new additional cost. They’ve always been involved in managing a fund and are already fully reflected in net returns.
New regulatory rules require us to show you those costs – that’s why we’re splitting them from the overall costs you already pay for a fund you’re invested in.
The Representative Product Charge shown in the costs and charges webpage is the representative cost for the Product Charge. It covers administering and servicing of your pension and most of the fund costs. You may pay a different cost than this, as your employer could have negotiated a different charge.
For your pension there’s an administration charge, known as the Product Charge.
You’ll pay the sum of the Total Fund Costs plus the Product Charge.
You can view the actual Product Charge you pay by looking at your Annual Benefits Statement, where it’s referred to as the Annual Management Charge.
The Product Charge can include the Fund Annual Management Charge.
This covers a number of funds which we offer, including all the default funds we’ve listed. You’ll see the text “Included in RPC” (which means ‘included in Representative Product Charge’) in the Fund Annual Management Charge column where this applies. As there’s no additional charge for Fund Annual Management on these funds, the Total Fund Costs column is the sum of only the Annual Additional Expenses and the sub-total of Transaction Costs.
Outside the choice of default funds offered there are a number of funds where there’s a Fund Annual Management Charge that’s not covered in the Product Charge. This will be displayed in the Fund Annual Management Charge column, where applicable.
The Representative Product Charge (RPC) is designed to cover the administration and servicing of your pension. Included in that charge can be the fund annual management costs of the fund.
We’ve identified these funds by outlining ‘Included in RPC’ within the Fund Annual Management Charge column
There are two reasons why the costs and charges on the webpage may not match what you see in your personal Annual Benefit Statement:
- The webpage provides a view of the Representative Product Charge a typical customer might pay. The Product Charges you pay are those negotiated by your employer, and
- The charges shown in your Annual Benefit Statement will be the total of the Product Charges you pay, any Fund Annual Management Charge and/or Additional Expense if they apply to the funds you hold. It will not include transaction costs unless explicitly stated otherwise.
These costs and charges aren’t new, and you’ll already be paying them in respect of the funds you’re invested in. What we’re providing is a greater level of detail on the costs and charges.