The Financial Conduct Authority and Department for Work and Pensions’ Independent Project Board has found that about £26bn of pension scheme assets are potentially facing charges of 1 per cent or higher.
The board carried out a joint review of charges in both trust and contract-based schemes, and concluded that the majority of schemes had either taken action or planned to take action to reduce costs and charges to 1 per cent or lower.
There is a framework in place to call providers to account, the facility is there – but ultimately it comes down to resourcing
Marcus Fink, Ashurst
However, it also found that for roughly 231,000 people, representing 16 per cent of the assets under management of contract-based schemes and 15 per cent of the AUM of trust-based schemes, “progress [on reducing charges] is unsatisfactory or unclear”.
This compares with 68 per cent of the AUM of contract-based schemes for which they are taking or planning action, and 64 per cent of AUM of trust-based schemes.
Questions over IGC effectiveness
While the board's findings found independent governance committees to be “generally effective”, it raised concerns that “in specific instances, and particularly where actions have not yet been taken by providers to reduce the costs and charges on schemes, we believe that IGCs could have played a more proactive and rigorous role in driving providers to agree robust actions more quickly”.
It went further, adding that “in a small number of instances the independence of the IGC may be compromised due to its composition and/or a strong senior management presence at meetings”.
Concerns over the independence of IGCs are nothing new, and the board has urged them to take its recommendations to reduce fees as a priority.
Marcus Fink, partner at law firm Ashurst, said: “It’s quite disappointing really. It’s clear that some providers are making quite an effort to ensure their offerings are fit for purpose in terms of costs and charges, but others are being slow to do that.”
“You have to question how forceful those IGCs are in getting the message across to providers,” he said, but added: “What is clear is there is a framework in place to call providers to account, the facility is there – but ultimately it comes down to resourcing.”
Bring down costs and charges
Andrew Pennie, marketing director and head of pathways at adviser Intelligent Pensions, said increasing scale could facilitate a drop in fees, but that a focus on costs could risk overlooking other aspects of schemes.
What the latest IGC reports tell us
For as long as the term 'independent governance committee' has been floating around the pensions industry there have been questions about how they will work.
“The report mentions the assets are increasing, that makes it easier to take a small charge on a larger asset [base].”
“We have to be careful – the more we drive down costs we have to make sure we don’t affect value. I’d rather pay more money in the hope of getting better performance.”
However, Pennie pointed out IGCs are still a new concept, so it would be reasonable to expect them to improve in time.
“A lot of IGCs are quite new, some are better equipped and skilled than others,” he said, adding that over time the less effective committees are likely to improve.
