A problem with buying “bundled” DC services is finding out what’s really going on under the bonnet.
I recently blew my power steering pump , I wanted to know what had happened but the pump was in a sealed unit – no warning could be given – no explanation for failure was forthcoming,
So with workplace savings plans;- the problem becomes apparent when people come to buy an annuity – no warning given – no explanation forthcoming!
If the “pension is puny” people ask “what went wrong?”. Whether the reply’s from a trustee or an adviser or an insurer, “I don’t know and I can’t find out” – sounds “sealed unit” talk.
My car mechanic told me it was one of those things and tried to sell me a new car.
I told him I’d like a car with diagnostics that warn me there’s a problem before my steering wheel locked up!
As a pension consultant and DC Trustee, I would like to have a diagnostics panel that provided proper MI;
- The AMC , fund expenses and portfolio transaction costs
- Transition costs during the glidepath into retirement
- Pay-aways to third parties such as commission or consultancy charging (in accumulation and as income is drawn).
Secondly, I need realistic benchmarks that tell me whether these costs are under control.
Thirdly I’d like to have detailed incidence reporting when something is wrong.
As my mechanic told me
If my car is supposed to be doing 40 mpg and is only averaging 30 mpg, I know I’ve a problem but I don’t know why. With a diagnostic report on the engine I can do something about it – maybe an adjustment, maybe a new engine. But I sort the problem before my bank forecloses on my fuel bills!
The reporting on DC pensions has typically been to members and is weak. Fund performance quoted gross of fees or with a non-specific charge tells the member little about the bundled service. They may be helpful for planning but not as a report on what’s happened. For that members need Fiduciaries- trustees, insurers and advisers
Fiduciaries who really want to look under the bonnet find it hard to get the information they need to properly assess the management of the arrangement.
In one area things are even getting worse- fund managers are now given discretion as to whether they publish their portfolio turnover figures, a key diagnostic is being lost!
If you don’t think Portfolio Turnover Rates matter, read Gina Miller’s comment below – a blog in itself!
But maybe the tide will turn. The decision of 14 members of the ABI to publish “hidden charges” on their DC funds from next year is great news (and meetings I’ve had with the ABI suggest they are determined to do this). Tighter scrutiny from the Pension Regulator, more joined up regulation with the FCA, the publication of the OFT study in August and further details of the DWP’s “Quality Test” all suggest that there will be much greater scrutiny of the management of bundled DC funds going forward.
Meanwhile, it is up to Fiduciaries of workplace savings arrangements, to get up to speed with the issues and put pressure for greater transparency of diagnostic information.
- It’s a wrap trap – but who’s been caught? (henrytapper.com)
- Light in the lifestyle tunnel! (henrytapper.com)
- DC Trustees – asleep at the wheel? (henrytapper.com)
- Why we must get resolution on pension charges (henrytapper.com)
- The Regulator’s right to be cautious about mastertrusts (henrytapper.com)
- Dear OFT…. (henrytapper.com)
- Poor execution – a pigsty – not a playpen (henrytapper.com)
- Vertical disintegration (henrytapper.com)