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Bringing Transparency To Pensions Fees

The ongoing debate around the transparency of pension fees was back in this news this month. On March 4, The UK’s Financial Services Consumer Panel (FSCP) proposed a new reporting standard, which it hopes will provide trustees and independent governance committees with better insight into the costs being deducted from funds. This move follows 2014 research from the FSCP, which demonstrated that the full extent of pension fund charges is largely unknown by pension holders.

Ever since the UK Government introduced a Pension Fund Charge Cap for auto-enrolled workplace pensions last year, there has been mounting pressure for pension trustees and governance committees in the country to be more open about transaction costs and other charges they pay, to ensure pension holders get a fair deal.

The FSCP’s proposed reporting standard would further increase this pressure by asking asset managers to report immediately on any and all charges on a ‘comply or explain’ basis. Furthermore, if the FSCP’s proposals are implemented, the Financial Conduct Authority and The Pensions Regulator will be asked to press independent governance committees and trustee boards to only use compliant funds.

While this news concerns the UK, it is part of a global tend within the financial services towards greater transparency and a better deal for consumers. As a result, it seems clear that the time has come for pension funds to embrace more open and transparent approaches to charges, and this involves understanding better their own costs so they can report them accurately to regulators and pension holders alike. This reporting must include areas where costs can be opaque, such as the total cost of data, while pension fund trustees should look to have a better understanding of the fee structures imposed on them by asset managers.

Of course, as charges become more transparent, asset managers and trustees alike will come under pressure to offer competitive pricing. We can therefore expect to see asset managers look to lower their overall costs, including the total cost of data management. In this respect, RIMES believes that increased demands for data transparency will further encourage asset managers to embrace a managed data service as a means of lowering their costs and delivering more competitive packages to independent governance committees and trustee boards.

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