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 applicable to the fund as at the date shown, and may vary from the total that you may actually pay.
The Total Fund Costs are the sum of:
Fund Annual Management Charge
+
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 (taking into account the Fund Annual Management Charge applicable to your fund holdings where different).
For TargetPlan the Fund Annual Management Charge covers the administration of your pension as well as the Investment Management fees.
We’ve used representative costs for the Fund Annual Management Charge in the costs and charges webpages. Your own Fund Annual Management Charge may vary from those shown.
You can find details of your Annual Management Charges and Additional Expenses for all the investment funds available to you by logging onto TargetPlan and selecting ‘Funds Information’.
You can also find this information in your Investment Options Guide, which was included in your welcome pack, and is saved online in your Document Store in TargetPlan.
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.
You can see the actual expenses you pay on your annual statement, or by logging into your online account.
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 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.
This is because we’ve provided a view of the representative Fund Annual Management Charge.
The Fund Annual Management Charge you’ll pay on your own Account will be influenced by the funds you hold, and the terms negotiated by your employer, if applicable.
You can see the actual costs and charges you pay on your annual statement, or by logging into your online account.
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.