Melanie Johnson, Economic Secretary to the Treasury, addressed the National Association of Pension F...
Melanie Johnson, Economic Secretary to the Treasury, addressed the National Association of Pension Funds yesterday to outline how the Myners Review fits in with the Government's objectives, and what the Government's role should be in relation to the pensions industry.
Key points of the speech included Johnson highlighting the need for greater clarity regarding the timescale that fund managers' performance is measured. She said: "We have no intention of setting any minimum timetable for assessing performance: that is and should be a matter for the trustees of each fund to decide. But it is for the trustees to ensure they have in place a clear and explicit mandate, so their fund managers can be certain over what timescale their performance will be assessed."
Attention was also drawn to the way funds pay their fees. Johnson commented: "Fund managers currently outsource research and execution: both important elements of the work of managing a portfolio.
"However, this outsourcing is a business cost like any other, and fund managers should ensure the price they charge their clients covers their business costs. Instead of doing this, fund managers simply pass on the cost to their pension fund clients, in the form of commissions paid on buying and selling shares." Johnson proposes, in accordance with Myners suggestion, that fund management fees should include the cost of commissions."
The additional costs that the review would entail were discussed - such as paying trustees. Johnson said: "Paying trustees and advisers more will have little impact on funds costs, but the benefits it will bring - a more skilled and professional approach to investment; activist fund management; and a careful consideration of all asset classes, including alternative assets - could generate significantly improved returns."
Johnson confirmed the Government is abolishing the Minimum Funding Requirement and replacing it with a long-term scheme-specific funding standard and a regime of transparency and disclosure.
The Inland Revenue has also been contacted, in partnership with experts from the pensions industry, to examine whether a package of practical options can be developed to simplify the administration of defined benefit schemes.
Johnson explained: "The aim of the project will be to ease the complexity of scheme administration, so the team will not be considering any changes to higher rate relief, the earnings cap level or maximum benefit accrual rates. Instead, staff from the Inland Revenue and the Industry will be working together to find ways to improve both the existing tax rules governing scheme administration and communications between the Inland Revenue and pension schemes."
As the Review recommends, the industry will be given two years before it is considered again to see how recommendations have been implemented.
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