Politicians urge government to legislate for cost disclosure

Asset managers should be forced by law to comply with new cost disclosure templates, according to politicians in the UK’s lower house of parliament.

In a wide-ranging report published this morning, the Work and Pensions Select Committee said it was “not convinced” that the current voluntary regime – with a threat of legislation at a later date – would “provide sufficient incentive to achieve a high take-up” of the disclosure code.

The Cost Transparency Initiative (CTI) was launched last year following months of work by pension funds, asset managers, trade bodies and regulators to formulate standardised templates for the reporting of fund management, trading and administration charges.

It is already supported by the Local Government Pension Scheme – which has roughly £347bn (€377.6bn) in assets under management across 100 local authority funds – the Investment Association and the Pensions and Lifetime Savings Association (PLSA).

The committee’s report acknowledged that there was not a “perfect one-size-fits-all model” for disclosure, but still urged the government to act.

Frank Field, chair of the committee, said: “Government and regulators should not wait for the industry to fail to act voluntarily as they have so many times in the past. It must put the full force of the law behind such changes.”

The committee’s report stated: “We recommend that the government bring forward legislation to make the disclosure templates mandatory for both defined contribution and defined benefit schemes.

“We recommend that, to avoid poor quality and untimely data, the disclosure templates are supported by an independent verification process. Compliance should be overseen by the relevant regulators, who should be given any additional powers they might need to tackle non-compliance.

“We recommend that schemes should be supported to collect additional information if the template does not fully cover their individual scheme needs. This information should be available for scheme members as part of the wider information provided on value for money including information on exit charges and any other costs associated with transfer of their pot.

“The FCA [Financial Conduct Authority] should explore the creation of a public register of asset managers’ compliance records with reasonable data requests.”

CTI expresses disappointment

Mel Duffield, chair of the CTI and pensions strategy executive at the Universities Superannuation Scheme, expressed disappointment that the report, while supportive of the CTI’s templates, “fails to recognise the strong engagement between industry, regulators and government in adopting the work”.

“Just two months after the launch of the templates, the level of detail in the technical queries the CTI has been receiving from investment managers demonstrates the already high level of engagement and take-up by industry,” Duffield said.

“The FCA, [the Pensions Regulator] and government ministers have all provided welcome drive and direction, sending very clear messages to the industry about their expectations. We are confident this will help to ensure the success of the CTI.”

Nigel Peaple, director of policy and research at the PLSA, added that the templates had been downloaded “thousands of times” from the organisation’s website, and that it had “fielded hundreds of technical queries” about implementing the measures.

Report targets transparency

The Work and Pensions Select Committee’s report touched on several other aspects of pensions and investment reforms including the proposed pension dashboard, the auto-enrolment charge cap, pension tax relief, and the FCA’s work on scams.

Since auto-enrolment was introduced in 2012, any defined contribution pension fund automatically enrolling staff has been subject to a maximum charge of 0.75%.

While most schemes charge below this level, the committee called for the Department for Work and Pensions (DWP) to review the cap and its implementation, arguing that “not all charges are covered by the cap”, and those that fell outside were not fully understood.

The committee said the DWP should “consider preventing flat-fee charging structures” for “dormant” pension pots, as these could be completely eroded by such charges. In addition, the department should “revisit measures to proactively consolidate smaller pots”.

The committee’s full report is available here.