18th February 2014

Scottish Widows: Retirement Account fund supermarket funds

Changes are being made to the funds available through the Retirement Account Fund Supermarket.

Scottish Widows have written to Retirement Account customers who have investments in the fund supermarket funds and their advisers. Letters were issued to advisers on 3 February and to customers over 3 days from 10 February 2014. see here 

From 6 April 2014, new Financial Conduct Authority (FCA) rules will prevent platform service providers from being remunerated via a share of fund management charges.  Instead, platform services must be paid for via distinct customer charges. This is to make it easier for customers to see what they are paying for.

This means that the fund charges and platform costs for the Retirement Account Fund Supermarket will need to be split out and shown separately. 

As a result of the change, fund managers are launching new ‘clean share class’ funds, which comply with the new rules.  Retirement Account will offer these new compliant funds with effect from 10 March 2014, approximately one month ahead of the FCA’s deadline of 6 April 2014. 

The FCA has agreed that existing holdings and unchanged regular payments can continue to be invested in existing funds until 5 April 2016 at the latest.  This is intended to lessen the impact of the change on firms and existing customers, allowing firms time to move customers’ investments to funds which comply with the new rules.

Specifically, the change will mean:

• changes to illustration outputs and disclosure material for new business and increments
• new processes to manage and reconcile the platform charge (referred to as the ‘Fund Supermarket Platform Charge’), applied by Fidelity and deducted from customer holdings on monthly basis
• the addition of new funds to the Fund Supermarket, and the eventual closure of the existing funds during the two year transition period
• improved scalability of current functionality to deal with the volume of funds, corporate actions, mergers etc. 

The change will also mean the overall cost of investment in some funds could increase, although for most, the cost of investment will be the same or less. In particular, for existing lower cost funds, the Fund Supermarket Platform Charge will be higher than the equivalent costs currently collected via the fund management charge rebates.  We expect this will be the case across the market, and not just for Retirement Account customers, as the full cost of platform services must be disclosed.

Retirement, Investments