How to disclose pension charges
The opening of the party conference season usually marks the opening of political hostilities after the summer break, so expect the disclosure of pension charges and costs to come back on the agenda. My view, not only as a spokesman for the asset management industry, but also in my other capacity as a consumer, is that there is still urgent work to do on this.
Like many people I am an investor in a self-invested personal pension managed by a leading provider. I would like to know how much it is costing me, but even I – who ought to be able to find my way round the detail – find it difficult to work it out.
What is needed is not difficult: the costs of the underlying portfolio (in effect the average ongoing charges in the funds I invest in), plus the costs levied by the provider or platform, with payments to my adviser shown separately, all expressed as a percentage of my portfolio.
Why is this not standard practice already? One problem is fragmentation: trust-based and contract-based schemes, with different regulators and different rules. We need to find a way through this complex thicket if we are going to deliver something that helps consumers. A good starting point is the “ongoing charges” model that has been adopted under European rules for retail funds. This provides a single percentage figure which includes all charges levied as part of running the fund over the previous year. And it works – the number gives investors a clear picture of the cost of investing and enables consumers to compare different funds on a like-for-like basis.
This model needs be extended to other product types, including pensions. Recent proposals by the European Commission (the Packaged Retail Investment Products, or “PRIPs” initiative) seek to do that. But euro-legislation takes time and this measure is expected to run into strong counter-lobbying so we do not know how it will finally come out.
In order to move ahead more quickly, therefore, somebody needs to pull together the various charges – the ongoing charges on underlying investments, adviser fees, and the charges applied by the administration platform – into the sort of disclosure made in the funds world.
This job naturally falls to the pension platform or provider, the entity facing the investor. They need to be under an obligation to do so in a prescribed common format. Meanwhile, other parts of the chain need to be under an obligation to make the necessary information available. The new IMA guidance on transaction cost disclosure can play a part here too.
So, how do we make this happen? It’s not my usual solution, but this is an area where regulators need to be involved. Regulation has delivered a uniform charge disclosure regime for funds in Europe, and it ought to be able to do so for pensions. It needs the industry to pull together with the relevant regulators – the FSA, the Pensions Regulator and the European supervisory authorities. It’s never easy to co-ordinate so many disparate groups. But it can be done and the prize of better consumer disclosure is a big one.
Chief Executive, IMA
24 September 2012
Chief Executive, IMA