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John Greenwood: Smoke and mirrors on pension charges

The pensions industry’s unwillingness to reveal total costs does not paint it in a good light

If someone else is spending your money, the least you would expect is they would tell you how much they had spent. Yet it seems transparency that would be expected by your solicitor or accountant remains a challenge for swathes of the pensions industry. No wonder the media gives it such a hard time.

The furore over the Which? report into pension charges, picked up by Labour to batter the industry, is a case in point.

Yes, Ed Miliband and Gregg McClymont were way off mark in picking the £11.8m Neptune UK Mid Cap fund as a “pension fund” and, yes, it is 3.96 per cent total charge, including portfolio turnover rate (PTR) expenses is not representative of the pensions enjoyed by the vast majority of people in this country. Or is it? The fact is, despite lengthy enquiries, I personally am none the wiser.

When the debate was all about AMCs, it took the industry quite some time to get round to defending itself. Aviva, the UK’s biggest insurer, published its figure of an average 0.61 per cent AMC across its corporate book, a fraction of the accusations of 1.5 per cent being hurled at the industry. Soon thereafter, the ABI also got together a figure for average AMCs across new pension business. All well and good.

But Labour’s intervention, prompted by insightful reporting from Which? has moved the debate beyond AMC, past TER and into the realm of TER plus PTR. Money Marketing’s Tom Selby has reported his own frustrations at the industry’s response to questions about what charges are disclosed and what are not. I have encountered similar difficulties in trying to establish what the TER plus PTR figures have been in recent years for the biggest default funds in the country.

The responses I have received have been patchy to say the least. Some providers have made genuine efforts to find these figures, others have taken literally weeks. Aegon is an exception it would appear – the charge on its Balanced Passive fund, has a 1 per cent AMC and TER. It says its extras are 1.22 basis points.

Legal & General said it is “not going public with these figures” because the ABI and NAPF have a working party looking at the issue.

I have to say, if any other service provider said it was not going to disclose the way it was spending clients’ money it held on trust, it would be a laughing stock. Pension providers clearly still do not get it.

With the exception of Aegon, it seems no provider has ready access to these fundamentally important figures.

This is astonishing. These default funds hold literally hundreds of millions of pounds of assets. Surely someone is charged with adding up all the costs at the end of the year to see how the thing has been managed. Or do managers chuck receipts into a shoebox on the off chance some journalist asks how much of our money they have spent?

Part of the reason for asking for these figures is the belief it would show a marked contrast between the Neptune fund and the largely passive default funds that hold the cash of so many of the nation’s savers. Instead we are left with the whiff of smoke and mirrors.

The publication of these PTR figures, which will have to happen eventually, should improve the quality of the debate over passive v active management.

Active managers must love Ed Miliband – they could have not picked a better example of PTR costs if they had tried. The Neptune fund is up over 120 per cent since launch in 2008 and is first out of 316 funds in its sector over a year.

But not all active funds will have performed as well.

Similarly, some passive funds will have spent more achieving similar or worse performance than their peers. But as and when PTR costs do become more comprehensively disclosed, fund managers will be under greater scrutiny as to the costs they incur. And that has to be a good thing.

John Greenwood is editor of Corporate Adviser

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. I wonder if ASDA would provide a full breakdown of costs and profit margin on products they sell and disclose them to the public?

    Or if banks would disclose the difference between their own borrowing costs, interest rates charged or given?

  2. Thank god the war on pension charges has begun. However, fund managers are not the only culprits; financial advisers, fund platforms and ‘other specialists’ get a slice of the charges pie. You may enjoy my blog: hodge-podge investment management

  3. So John are you suggesting they should work for free?

  4. yes we should all forrigde in the woods for food and shelter…

    or get a proper job at the banks where we can sleep well in our beds knowing that we have given clients the best advice on every case using our one compeny’s limited range of products…

    or retire following RDR when only our better off clients can afford to use us…

  5. John Greenwood-An excellent article.As for anonymous comment saying-So John are you suggesting they should work for free,John is suggesting nothing of the sort.Nobody expects anyone in your industry to work for nothing but all pension investors deserve and should expect nothing less than total transparency regarding all pension fees,after all it is their money.

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