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27 July 2001

GOVERNMENT SETS OUT WAY FORWARD FOR PENSION FUNDS’ TRANSACTION COSTS

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

1. The Myners review was commissioned by the Chancellor of the Exchequer, Gordon Brown, in the 2000 Budget (Budget 2000 press release HMT1- link below) 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 below 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.

2. 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.

3. 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.

4.  A Government statement on broking commissions, published today, is available by clicking on the link below.

5.  Media enquiries should be addressed to Liane Farrer, Treasury Press Office, tel 020 7270 5192.

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Internal links

• Budget 2000 Press release HMT1: Prudent for a Purpose
• Treasury Press Notice 29/01
• Treasury Press Notice 34/01
• Government statement on Broking Commissions