In the final instalment of the fund fees survey, schemes outline how they educate and update their members on the impact of charges on their investments
Schemes have overwhelmingly spoken out about the need to raise financial literacy among members – but have also stressed the importance of tailoring communications to individuals’ needs.
Helping members understand charges
The survey asked scheme representatives how they help their members understand the impact of fund management fees. Here are a few responses:
Chair of trustees, £40m scheme, 900 members: “Give them details of fees charged in different portfolios.”
Pensions manager, £2.2bn scheme, 41,000 members: “Try to explain charges clearly and simply. We also include them in the booklets.”
Secretary, £1.5bn scheme, 17,500 members: “We include them within investment factsheets for DC members and in annual reports for DB.”
With the onset of auto-enrolment later this year, millions of first-time savers will be introduced to the pensions market.
The pension funds were polled as part of a wider schemeXpert.com survey into attitudes about investment charges.
The level of fund management fees can have a massive baring on the value of long-term savings. Members who are better informed about this relationship improve their chances of having a higher income in retirement.
“More financial education is imperative in all areas, not just on fees,” said the pensions manager at a £110m scheme with 1,900 members.
The 20 respondents – from schemes with a total of £27.5bn in assets and more than 500,000 members – also discussed how they help their members better understand the impact of charges on their savings.
More financial education
The level of annual management charges can have a massive impact on a defined contribution member’s retirement pot due to compound interest. This was highlighted in a study by the Department for Work and Pensions.
The risk of simply focusing on fees is that people go for the cheapest option without considering whether it is appropriate for them
Manager, £2.2bn scheme
It found that a median earner with a full savings history who paid 0.5% AMC would see 9% of their total fund value being spent on charges. But the same member paying 2.5% AMC would lose 37% of their fund in fees.
The investment manager at a £2.2bn scheme with 65,000 members said providing information to individuals of DC fees was “critical”, but added it would only be used by a minority.
Meanwhile, the pensions manager at a similar sized scheme with 41,000 members said she was cautious when providing members with information over investment charges.
“Members should receive financial education but the risk of simply focusing on fees is that people go for the cheapest option – say a cash fund – without considering whether it is appropriate for them,” she said.
Other respondents suggested schemes should persuade members to concentrate on the performance of their investments net of fees.
Meanwhile, one pensions manager of a trust-based scheme said it should be up to the trustees to negotiate the best rates and provide details of the fees structure to members.
Educating members
Last year, the Pensions Regulator launched a consultation into how it could work with schemes and providers to help enable good DC member outcomes.
My contact details are available if anyone wants to talk about [fees]
Manager, £1.3bn scheme
In its response, published earlier this year, it showed there had been overwhelming support for clear and simple disclosure of investment costs, but only if it helped lead to better value for money for members.
The regulator said the industry supported its view that “there was a role for meaningful information on the impact of costs to members”, while recognising differing levels of financial sophistication.
The vast majority of respondents to the schemeXpert.com survey said they revealed the details of charges to their DC members through booklets, websites and fund factsheets.
Representatives of defined benefit schemes said they provided information on the fees they paid to asset managers within their annual reports, which were either sent to members or available to them online.
One member-nominated trustee said his £200m scheme provided its 1,900 members with information of the impact of fees on their long-term savings within their annual benefits statement.
But there was also some cynicism from respondents over whether their members were actually interested in the information they provided them with.
“My contact details are available if anyone wants to talk about this,” said the pensions manager at a £1.3bn public sector scheme. “But the only call I have had to date was an MP.”
