We do not need another consultation on costs and charges.

A report in Professional Pensions that we are to get yet another consultation on costs and charges fill me with gloom. As the report points out, we have two consultations on the subject – in progress. They follow an exhaustive call for evidence following the Novarca report published in April 2015. This report was itself a response to the failure of the Government to find a satisfactory way of defining hidden costs in the charge cap introduced in 2013.

It seems that every pension minister must have his or her own consultation on this subject to satisfy him or herself that nothing has changed since the last consultation and to ensure that the consultation can lead to his or her policy being included in a future pensions bill.

But we are dealing here with matters that are properly considered in secondary legislation (the stuff the FCA does). Statutory bodies such as IGCs , the LGPS advisory board and the Pensions Regulator are quite capable of making sure that whatever comes out of the FCA’s consultations is enforced.

The only beneficiaries of further consultations are the asset managers who will have won yet more years of grace in which they can operate under the radar. The Investment Association’s is questioning the data and metrics the FCA used to come to its conclusions that active funds do not on average provide better value than passive funds.

 For example, the Investment Association challenges  the FCA’s premise that high tracking error somehow justifies high fees is wrong, and says that
‘active’ means something “much broader than what tracking error (or other metrics) can show”.
The Investment Association claim that
” even on a total cost of ownership basis, active equity funds have on average outperformed their benchmarks”.
According to the Investment Association, actively managed equity funds
“do noticeably better than passive funds even on a bundled fee basis that includes advice and distribution costs”.
The Investment Association also claims
“weighted average returns for active equity funds are better than the benchmark net of all costs (including advice and distribution), indicating that the active equity universe as a whole is adding value”.
Finally, the Investment Association believes that active fund fees are falling and that this is
not only due to a movement towards unbundled share classes”. Rather this reflects a movement towards cheaper share classes within the unbundled segment, says the IA, noting that taking only clean share classes into account, the price of active funds fell by 7 bps to 0.92% from 2013 to 2015.
Clearly empowered by the Whitehouse press offices creation of “alternative facts”, the Investment Association have set out to kick the consultation process another couple of years by befuddling the current Pensions Minister into disbelieving what the FCA has spent the past two years discovering.
If we are to have another consultation, it will be in the teeth of all evidence gathered so far, it will be at enormous expense to Government and to the private sector and it will serve the consumer very badly.
We have had enough consultations on this to choose a third, fourth and fifth runway! The Pensions Minister should stop consulting and start turning the current consultations into enforceable legislation. He should remember that the transaction cost issue , bungled in 2013 is up for review in 2017 and forms part of the AE review.
It suits those who are coining it out of workplace pensions (the asset managers) to make sure that nothing is done on transaction charges anytime soon. It suits the IGCs and Trustees not to have to do tough work on value for money. But it doesn’t suit the members of the workplace pension schemes, or the sponsors of our  private DB schemes or the LGPS any, to consult a moment longer.




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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