DC default fund charge cap: what’s in & what’s out?


In scope of the default fund charge cap on member-borne deductions.

All member-borne deductions relating to scheme and investment administration paid to the pension provider or other third party

  • Set-up fees
  • Scheme-level entry fees; both on entry into, or on transferring a pre-existing pot into, the scheme
  • Scheme-level exit charges
  • Fees (excluding transaction costs) for non member-initiated switching of funds
  • Fees paid to governance bodies, eg trustees, IGCs and others
  • Governance charges and expenses, eg trustee insurance
  • Fund or investment management fee, payments to investment consultants and administrators, including underlying and separate in-house fund managers, performance fees etc
  • Ongoing charges for underlying funds in investment portfolio, eg fee for holding units in a UCITS fund
  • Ongoing costs for running of scheme, eg IT, office and staffing costs, data management and record keeping
  • Registration and regulatory costs and fees
  • Payments to providers or professional services and other third parties or fees for related services, eg administrators, advisers, actuaries, lawyers, auditors, audit and legal fees for investment, accounting fees, valuation services
  • Depositary fees and fees to the custody bank (excluding transaction costs)
  • Banking fees
  • Costs of member communication services, eg statement costs, website, printing/posting accounts
  • Costs of capital requirements
  • Unrecoverable VAT
  • Payments to shareholder service providers
  • Platform fees
  • Commission (pending ban from April 2016)

Excluded from the default fund charge cap on member-borne deductions

Transactions costs – the costs incurred as a result of buying, selling, lending and borrowing of investments

  • Dealing commission and fees, including payments for other goods and services provided in return, eg research
  • Transaction taxes, eg stamp duty and non-reclaimable withholding taxes on dividends
  • Spreads, eg bid-offer on bonds, foreign exchange (and associated costs such as commission)
  • Other charges embedded in the transaction price, eg payments incurred through financial derivative instruments
  • Custodian transaction costs (“ticket fees”)
  • Deductions of expenses or fees from income earned by other transactions relating to the underlying assets – eg stock lending, foreign currency exchange