We have scotch’d the snake, not kill’d it: She’ll close and be herself, whilst our poor malice Remains in danger of her former tooth.
Macbeth Act 3 Scene 2
Of all the vested interest groups, the fund managers are the best organised and most resistant to change.
The IMA and their buddies the ABI have put up smokescreen after smokescreen to stop us getting a clear understanding of what we are paying for when we give our money to asset managers.
Thankfully, the DWP have recognised that while the villains won’t come quietly, they can be put under special surveillance over the next three years before delivering sentence.
The estimable John Greenwood of Corporate Adviser, a campaigning journalist of the best kind has written this excellent summary of the Government’s statements surrounding the publication of the Command Paper on charges
Trustees and oversight committees will be given a new duty to obtain information on all charges within schemes, pension minister Steve Webb told Parliament today.
Webb said the Government wanted to shine a light into the ‘dark recesses of the pensions industry’, and said that consideration would be given to including transaction costs within the default fund charge cap in a review to be conducted in 2017. He said the DWP was working with the FCA to develop standardised measures for disclosing transaction costs.
The Investment Management Association attacked the introduction of the charge cap, although supported calls for greater transparency around charges.
The transaction costs that are currently hidden in complex and opaque investment chains will be exposed, so there will be new clarity about where a member’s money is really going.
“From April 2015 trustees and those who represent members’ interests in pension schemes will have a duty to obtain information on all charges. And we will start work straight away with the Financial Conduct Authority to develop standardised measures of transaction costs. We will use this information to consider whether another turn of the vice is needed in 2017 to take our reforms even further by potentially including transaction costs within the default fund charge cap.”
IMA director of public policy Jonathan Lipkin says: “While there is understandable concern in Government about assuring DC scheme quality, a charge cap is not the best way to achieve good outcomes and this was a key finding of the 2013 Office of Fair Trading (OFT) market study. Instead, the main focus should be on improving governance structures and standards across the DC environment.
“The IMA remains committed to working with Government and regulators to facilitate better governance as well as improved consistency and transparency of charges and costs disclosure. Such consistency and transparency is essential for building public trust in the pensions system.
“The Government has correctly recognised that charges and transaction costs should not be bundled together in a cap, again a clear conclusion of the OFT. Such an approach would have been counter-intuitive and counter-productive, unduly complicating the default design process and artificially constraining scheme decision-makers.”
By transferring the onus to police charges onto the Independent Governance Committees, the master trusts and the large occupational pension schemes , Webb has thrown down a governance challenge. This is a test not just of fund manager’s willingness to disclose but of fiduciary will power. Will these trustees whistle blow? Will they know what to whistle blow about? We are looking for a step-change in the behaviour of all pension trustees and we’ve got three years to monitor progress.
As for the IMA and ABI, fine words now have to be translated into fine actions. The standardised measures for transaction costs cannot come a moment too soon. In the Pension PlayPen’s response to the consultation (widely quoted in the Command Paper) we made clear what the framework for such measures should be and we’ve been proud to meet with both the DWP and tPR several times over the consultation period.
The Pension PlayPen will continue to campaign for better information,better measures, better benchmarks and ultimately for better funds. This is not about reducing charges , it is about eliminating unnecessary costs and improving the amount of money we receive in retirement.
Thankfully we have a Government department and Regulators who are prepared to make this happen.
But this will not happen just because of a statement in the house, or even a command paper, to make this work, we need better standards of governance to kick down the doors of the ABI and IMA and get things fixed. We have three years to get the job done, for the moment the snake is still alive.