Cost Transparency Initiative sees 23% spike in schemes’ uptake

The CTI framework was established by the Pensions and Lifetime Savings Association in partnership with the Investment Association and the Local Government Pension Scheme Advisory Board, and is an industry standard designed to allow investment managers and asset owners to compare costs and charges.

In a survey of 43 pension schemes and intermediaries carried out between October 22 and November 13 last year, supplemented by qualitative interviews carried out between November 2020 and January 2021, the CTI found that 79 per cent of those surveyed had made use of its framework to at least some extent.

This is a 23 per cent increase over the figure from May 2020. The research also showed that 11 per cent of schemes not currently making use of the CTI framework plan on doing so this year.

The research found that larger schemes that use intermediaries are typically further along in implementation than smaller schemes without access to these third parties — a greater proportion of the latter are still in the data collection phase.

Of those schemes currently making use of the framework, 64 per cent had reviewed costs and value for money in light of the information received, while 20 per cent said they had acted on the same information. Nine per cent had reviewed their asset allocation, the survey found.

When asked whether the CTI framework is delivering benefits to their schemes, three-quarters agreed, while 29 per cent were neutral and none disagreed.

The majority (89 per cent) of respondents found the CTI framework easy to access: 74 per cent said it was easy to understand, and 70 per cent said the format suited the needs of their organisation.

The research did highlight a number of areas where improvement is required, however. These included the templates’ limitations in capturing charges associated with alternative asset classes such as illiquids, property funds and funds of funds.

A need for additional promotion and guidance, especially to improve understanding around the timescales for completing CTI templates and how to calculate certain types of cost, was also identified.

The CTI said it was already working to address the issues with technical updates, and will publish additional case studies later this year aimed at helping schemes understand how to use the framework’s data, and how to challenge their managers where necessary. It will also consider publishing additional guidance on benchmarking costs information.

Mel Duffield, chair of the CTI and PLSA policy board member, said: “The high level of uptake and growing awareness of the potential benefits show the CTI framework is making a significant impact on the market.

“As awareness of CTI reporting has increased, asset managers and intermediaries are working together to provide the information that schemes need to understand their costs and charges. This has already translated into tangible benefits for some schemes, and we only expect this to gather pace through the course of this year and beyond,” she said.

“In a challenging investment environment post pandemic, understanding costs is as important as ever. The expectation continues to be that the CTI framework becomes the standardised way of reporting investment costs, right across the pensions industry.”

Jeff Houston, board secretary of the LGPS Advisory Board, praised the availability of standard templates, which he said “was pivotal in a disclosure rate of 96 per cent for costs relating to 2019-20 in what was a very difficult year when priorities were understandably elsewhere”.

However, he cautioned that there remain “gaps in understanding of the templates and technical difficulties in their completion, as well as uncertainty on how best to make use of the increased cost data”. Although he added that “without doubt, the direction of travel to greater transparency is now set”.