Strong take-up of the Cost Transparency Initiative should not mean the industry takes its eye off the ball on costs, argues chair Mel Duffield.
In my role as chair of the Cost Transparency Initiative board — which is an initiative led by the Pensions and Lifetime Savings Association, the Investment Association and the Local Government Pension Scheme Advisory Board to help improve and standardise the reporting of investment costs and charges — my focus is firmly on scheme costs.
The Department for Work and Pensions opened a review of the default fund charge cap and standardised cost disclosure at the end of June, which will require careful consideration from the pensions and investment industries, given the complex and subjective nature of how to define what value for money should mean in practice.
It is this greater facility to scrutinise and compare costs that is at the heart of what the DWP, FCA and TPR are now coming to expect of pension schemes
Concurrent with the DWP review, the Financial Conduct Authority is also seeking views from the industry on proposals to strengthen obligations on how independent governance committees and governance advisory arrangements compare the value for money, including costs, of pension products and services.
The PLSA policy board, of which I am a member, keeps a close eye on charge-cap issues, so I am looking forward to contributing to its consultation responses as it prepares them over the coming weeks.
Costs and charges form a major part of the FCA’s three-limbed definition of value for money — the other two are investment performance and services such as member communications. This underlines how important it is to integrate a thorough assessment of costs and charges, including investment costs, into your assessment of your scheme.
Lean on advisers
I have always been clear that the industry needs a flexible and responsive approach. At the heart of this approach must be effective communication between investment managers, asset owners and their advisers.
Such an approach allows asset owners to obtain the clear information they need, when they need it, to allow them to understand investment costs and to enable meaningful comparisons. It is this greater facility to scrutinise and compare costs that is also at the heart of what the DWP, FCA and the Pensions Regulator are now coming to expect of pension schemes.
Of course, different types of schemes have varied amounts of resources available to enable them to scrutinise investment costs. Pensions consultants, information providers and utilities, and other intermediaries often play a vital role in this process.
In announcing its review, I was pleased the DWP recognised the work the pensions and investment industries have undertaken via the CTI to establish and promote new industry standards for cost reporting.
The initiative provides clarity for asset managers about what data to supply, and allows pension schemes and asset owners to compare costs between managers and drive better value for their savers and investors.
No room for complacency
Asset managers, pension schemes and their advisers have already made huge efforts to ensure the CTI framework becomes the industry standard.
Three-quarters (74 per cent) of respondents to a recent PLSA survey of schemes and consultants say they have a good level of awareness of the CTI, and the majority have already requested costs information using the CTI templates.
Feedback from service providers demonstrates strong levels of take-up of the CTI framework from schemes ranging in size and structure, including DB schemes, LGPS pools and defined contribution master trusts. Awareness is expected to increase further as we move through this year’s cycle of reporting periods.
However, there is no room for complacency. The pandemic, market conditions and heightened regulatory scrutiny mean trustees are under intense pressure. This means having clarity on the drivers of investment and other costs is more important than ever.
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Reflecting this, the team behind the CTI is striving for ever better outcomes for savers and investors. Recently, the CTI published additional cost disclosure templates to cover a wider array of asset classes, which will allow schemes to compare costs across their investments more easily.
If your scheme is not yet making use of the free CTI templates, you can find out more via the PLSA website and read case studies from large pension schemes about how they are already saving money. If you want to know what your costs are, the CTI is the way to do it.
Even as we enjoy the hottest August for 17 years, expect discussions about investment costs and charges to heat up through 2020.
Mel Duffield is chair of the Cost Transparency Initiative
