Last week I went to the FCA to discuss price disclosure with the Regulator. The time is right for people to understand what they pay to have their pension managed.
I am one of the few people who gets information on what I am paying to own a pension fund. That is because I get a statement each month telling me how much money is in my pot , what I am paying for investment management, what is being spent on transactions and what is being spent on giving me and my employer a good experience (call it administration).
Here is my disclosure
|Fund charge %||Slippage %||Admin Charge %||Total Funds||Cost of ownership pm £|
|Multi Asset Fund||0.13||0.06||0.18||400,000||123|
|Global Equity Fixed Weights||0.10||0.02||0.18||400,000||100|
This is a “before” and “after” comparison. In May I moved from the more cost Multi-Asset Fund to the Global Equity Fund. I moved because I did not want to be invested in anything other than equities – it was helpful in making the decision to know I would be paying less in transaction costs.
The decision was not this binary, other choices were available, but once I’d got to the point when I wanted to move funds, this table was helpful. Please don’t tell me I lost the value of multi-asset diversification (I know that)- I simply didn’t need bond returns in my pension fund.
I am my IGC
Independent Governance Committees, when deciding whether their members are getting value for money need to have the same fundamental management information.
They have not one but two questions to ask
- Is there provider getting value for money from its investment management and administration suppliers (whether in or out of house).
- Is the member getting value for money from the provider.
These are not the same question but the two are inter-related.
I am my own independent governance decision, I have to decide whether to stay with L&G and then what fund I used as the Henry Tapper default.
My means of benchmarking whether I am getting value for money on costs and charges is to look at what the market is offering me elsewhere. I have found that I could invest using the Vanguard admin platform and the cost of ownership would be roughly the same. Except I can’t do this for my workplace pension. If I go anywhere other than Vanguard, my costs go up. So my decision is to keep my money on the L&G platform
Then I have to decide from a range of fund options available from L&G where to put my money; if I make no choice, I use MAF , I chose a similar fund to MAF that was more focussed on equities. This was because I have a 30 year time horizon and have no immediate liabilities to meet from this money (I’m still working).
I have told myself, that relative to the market as a whole, I am getting value for money. This could change. The fund I was in and the new fund have about £2bn in them, the L&G platform maybe manages £10bn. But NEST will be managing £500 bn on its platform within my time horizon. Once NEST has paid off its debt (2038)- assuming it stays not for profit – it may offer members better value for money than L&G.
As my own IGC, I will keep a watching brief on NEST and other top workplace pension providers to make sure I continue to get the best deal for me.
Very few people will pay as much attention to their pension as me. Most people will outsource the decisions I take for myself to
- Their Financial adviser – for personal decisions
- Their Employer – for the choice of workplace pension
- Their IGC of master trustee – for the governance of that choice.
Most people will trust their employer to be choosing in their best interest and their IGC or master-trustee to keep their workplace pension provider honest.
Most people would be shocked to know that most employers and even the super- buyers at IGC and master-trustee level, are buying with imperfect decision. They don’t know how well the investments you are making are working and how much they are costing.
This simply isn’t good enough
To decide if you are getting value for money , you don’t just need to know how much value and money you are getting, but how much you could be getting elsewhere. My explanation of my own decision making shows the process I had to go through , to get to where I am.
But employers don’t know what their staff are getting as VFM as they (generally) don’t have the MI from the IGC to see. Even if they knew the cost and the value of their workplace pension, they would have no way of evaluating those costs and values unless they could make a comparison with the other choices.
IGCs can’t even (generally) disclose their own costs and value let alone disclose how their provider is doing compared with others. There are a number of reasons for this.
- They can’t get the MI from their own providers because they are blocked by a non-disclosure-agreement (NDA)
- They have the information but can’t share it because of the terms of the NDA.
- They can share it but they can’t compare it as other IGCs are bound by NDAs.
- They simply don’t want to share information to protect their provider and/or its suppliers.
I have been canvassing the opinions of IGC chairs on disclosure and have found them split between the four camps. I am pretty close to outing those IGCs who would not meet with me (one agreed to meet with me so long as we did not discuss benchmarking, two did not reply and three told me to go away).
The rest of the IGC chairs expressed frustration that they could not get the information they needed to make a decision on Vfm as I did, or that they could not publish their work because of NDA restrictions.
What is needed
What we need are Vfm scores properly compared in league tables that allow IGCs and Master Trustees, employers and members of workplace pensions to see what they are getting.
At the moment there is no way of getting this. To change this we need the FCA to empower and require those tasked with measuring Vfm to do so in a consistent published fashion.
That means ignoring NDAs and disclosing what is really going on at the pricing level, within the providers, IGCs oversee.
We are remarkably close to being able to do that, but “close” is not good enough!