DCIF; we won’t pay higher fees without sight of better value

On  Ricki Sushak’s “day of reckoning” , the DCIF unveiled a 75 page report from Richard Parkin on progress made by DC master trusts in adopting best investment practice. The agenda of the report is clearly focused on DC as a means to accumulate wealth and is open to the criticism that for investment managers, this is a self-serving agenda.

We could have had the hour dealing with member concerns including

  1. What to do about the build up of small pots
  2. How to manage contributions to get promised tax incentives
  3. When and where to see my pension rights in one place
  4. How best to spend my pension savings

I was surprised (and disappointed) that my question , posed prior to the meeting and during the meeting, as to the impact of the Pension Schemes Bill’s CDC provisions on investment thinking, went unasked. I was pleased that Graham Peacock’s cheeky question as to whether ESG stood for “Enhanced Sales Guaranteed” was asked.

While I am broadly in support of the promotion of the value enhancement of good investment practice in DC, I am not blind to the competing agenda of fund managers and platform providers. The debate is about fees and value – value for money.

Fund manager v platform provider

What the report boils down to is five proposals

  1. Government doesn’t seek to reduce the charge cap below its
    current level or seek to include transaction costs within the
    cap. Doing so is unlikely to improve competition and will only
    constrain investment development further
  2. Master trusts and other DC schemes should be required to
    separately disclose what is spent on investment versus other
    services to allow users to better assess value and facilitate
    a more informed discussion about what drives improved
    member outcomes
  3.  Industry and government must continue to work together to
    develop new approaches to enabling master trusts to access
    illiquid investments efficiently and affordably, particularly in the
    area of socially responsible investment
  4.  DWP and the Pensions Regulator need to clarify their
    requirements for occupational schemes in relation to retirement
    pathways and associated communication to enable master
    trusts and asset managers to continue to innovate in this
    important area
  5. More asset managers should look to design funds and
    capability specifically for the DC market, in response to some
    of the feedback which has been highlighted in this report.

It seems clear to me that Government has no intention on constraining the use of illiquids within DC, indeed it is doing all it can to loosen the charge cap to ensure that more schemes follow Nest into the kind of patient capital investment that makes our money matter in terms of building back Britain (that’s enough woke sycophancy-Ed)

The second point is one made by this blog many times over the years. Richard Parkin , when presenting the report , mentioned how shocked he was when he found out the low proportion of master trust revenues committed to paying for investment management. At a time when fund managers are offering “free” fund management, in return for rights to stock-lend, it is hardly surprising that commercial master trusts are maximising retained revenues and freezing out expensive managers. Unsurprising but not necessarily desirable. What is needed from master trusts is what is being required by the FCA. Employers and members need “value assessments” of the fund management and its impact on member outcomes, these assessments should focus on what value is being achieved for the money that platforms are paying for funds. The member is wrongly thinking that their AMC represents the cost of investment and such value assessments would put them right.

I agree with point three, the current mechanisms for delivering illiquids to DC aren’t yet fit for purpose, it is up to the investment management industry to work out how to create SPVs that work for DC, it is not up to master trusts to adopt the current “investment solutions” to satisfy the needs of fund managers and desires of Government.

On the fourth point, I sense that no-one in TPR or DWP is so impressed with the investment pathways being developed by the FCA, to follow them down that rabbit hole. AgeWage recently analysed 45,000 personal pension pots within workplace pensions for a leading IGC, only 31 pots were paying adviser charging, meaning that 99.99% of pots were unadvised. To suppose that investment pathways can do the heavy lifting for master trusts without considerable support from advice or guidance is a big assumption. What seems much more likely is that the DWP is lining up scheme pensions , paid from CDC as the long-term solution to the clumsily named “decumulation” problem.

The final point is fair and is born out by my conversations with many fund managers who are baffled about how they can provide fund management for free and expect to make a profit. The report acknowledges that the investment industry and the platform providers are not always speaking the same language.

But the way for investment managers to engage with master trusts is not to tell them what they should be doing but to find ways for master trusts to do things better and that means focusing on member outcomes. Only once in the hour long presentation yesterday did I hear anyone talking from the member’s point of view (thank you Darren Agomber). Members carry the risks of higher charges not delivering better outcomes and it is only if investment managers can convince trustees (the member’s representatives) that their strategies deliver more for less, that strategies will change.

For this to happen , we will need to see clear evidence that new strategies work. Thus far, I have seen little from the data that shows that investment in more sophisticated strategies  provides greater returns, though there is some evidence that larger schemes that can adopt diversification offer more stable defaults

schemes to the right of the red (£100m assets) line showing a wider range of outcomes than the larger schemes to the left.

Special pleading from the funds industry?

I recognise, though I can’t sympathise , with the plight of most asset managers with regards DC investment. The DCIF produced a word cloud during the meeting where participants were asked to say in a word what their greatest challenges were , getting traction with master trusts. I have marked my suggestions in yellow – so please exclude them.

I cannot sympathise with the fund manager’s angst about fees because I cannot yet see any argument for master trusts paying more for fund management based on achieved value.

This analysis is useful in showing us which master trusts are diversifying

But there is no comparable slide to show which master trusts are delivering excess value for the designs they have adopted. Instead we are asked to consider compaative returns in a way that speaks to the fund industry but not to members or their representatives.

Indeed, the analysis within the report, interesting as it is for fund managers, is really geared around understanding the marketing opportunity.

In talking with providers, the DCIF have however landed on one key finding. Providers want to be judged on value and are actually judged on cost. Here there seems consensus between platform providers and fund managers.

So is the solution to our problems , to allow costs to increase to a point that value can shine through? This seems a self-serving argument that no employer choosing a master trust will sign up to. What is needed is clear evidence that where platform providers invest a high proportion of their limited revenues in fund management , they get a bang for the member’s buck.

But without charts demonstrating where this is happening, I can see no reason for employers choosing master trusts to look beyond fees as a differentiator. The ball is in the court of the fund managers to show how member outcomes are improved by adopting their value strategies and it’s for the master trusts themselves to show themselves accountable for the decisions they are taking in the employment of fund managers.


Yesterday we became aware of the cost of the pandemic and the Treasury took on responsibility for the repayment of the debt we have accumulated in 2020.

The day of reckoning had been foretold to be November 25th. But for DC members, the day of reckoning may be 30 years away and we cannot afford to wait till 2050 to tell members we got it wrong back in 2020.

Trustees will not be around to be accountable for today’s decisions and so we need to be sure of the basis on which those decisions are taken – right now. The debate the DCIF are instigating is the right debate, their problem is they are having it with themselves.

The pushback in this blog, was not happening on the call, but it is the dynamic of the real debate. We need a lot more evidence than could be supplied yesterday, before that debate is over. Right now, there is no accountability for decisions taken – nor will there be – till we have clearer evidence of the outcomes of the choices. We need better data and a clearer understanding of the consequences of the options facing master trustees.

The report is available here

About henry tapper

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