UK – OK! Disclosure battle won – now let’s win the peace.

jap soldier 2
The PPI have produced a really excellent paper “Charges, returns and transparency in DC – what can we learn from other countries?”

The report, sponsored by Which? explores UK charges for pension schemes against those in the US, Australia, the Netherlands and Sweden.

It’s not headline grabbing stuff – but it is good to hear a Dutch pension expert praise the system of cost disclosure developed by the IDWG.  The Dutch of course got there first, but they are now acknowledging that we are using second mover advantage to learn from their mistakes. Jacqueline Lommen  explicitly linked recent work on both cost disclosure and collective DC as examples of the progress Britain is making. This may not yet be reflected in popular sentiment, but (at least in some areas) Britain is getting back on its feet.

Winning the peace

From the table above, we can see one of the difficulties with the omni charge AMC that has been the standard way of disclosing costs to savers in the UK.

Individuals get a rough idea of what they are paying from the AMC (rough because it doesn’t include transaction costs) but they’ve no idea what the omni charge AMC is paying for. Enlightened providers, such as L&G have followed the European and American models and split admin and investment costs.

In the UK – this has been seen a dangerous disclosure, NEST tell us that they cannot tell us what they are paying for outsourced fund management because they have put themselves under a voluntary NDA not to.

I have has numerous conversations with People’s Pension about how much of the 50bps they charge members goes to pay State Street (their fund managers), how much meets People’s running costs and how much is kept back by B&CE to recover the costs of setting up People’s pension nearly 10 years ago.

Since I haven’t had an answer, I am guessing that the split for People’s is 2-15- 33. If People’s want to come clean with the real numbers – I’ll be happy to publish them.

Winning the peace means building on the disclosures we have and pressing home the advantage. Not everyone will want to know what People’s or NEST are paying away to external service providers, what they are holding back to recover costs and what their internal running costs are – but people like me will keep asking. Sooner or later we will be able to benchmark the efficiency of these organisations and rate them for the sustainability of their propositions.

That’s one of the peace dividends!

How much do we pay to spend a penny?

So far, we have focussed on getting people a good deal on their savings, but have done little to disclose what people are paying in the spending phase of their DC pension.

This is worrying as many of us will need to spend our retirement pot over as many years as we saved and – while we were fully aware while we were saving – we are likely to become more vulnerable as we grow older – and mentally tired.

The idea that we pay to spend our pennies is not one that occurs to most people, but we do. There is no charge cap on that spending either and the costs of getting our money are far from easy to understand.

Without the data, it is hard for me to write with authority on this. It would be great if PPI could follow up with a similar report telling us the international comparisons between the cost of our drawdown system and the costs people pay to spend a pension penny in Sweden, USA and the Netherlands.

Not much chance of peace this morning!

I am going to make my way down to Westminster this morning, to witness the spectacle of Frank Field interrogating Colin Meech and Jonathan Lipkin at the Work and Pensions Select Committee.jap soldier

It’s likely to be a lively affair. Colin is like the Japanese soldier who will still be fighting his war- many years after the rest of us went home. Jonathan will be there to provide him with a target!

Frank will have to go some to beat the outstanding chairmanship of Laurie Edmans and the brilliance of both panel and audience in the debate that followed. Thanks to Lawrence Churchill in particular – whose insights partly inspired this blog. I cannot say more as we were under the beastly Chatham House rule.

I am however able to post this slide which shows just how far we have come since the bad old days.

and I can remember – though not repeat the brilliance of one of the best civil servants I have ever met.


About henry tapper

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