Pension savers are not getting the best value for money from their pension schemes, according to findings from the Competition and Markets Authority (CMA).
In September last year, the CMA launched an investigation into investment consultancy advice to pension trustees on the request of financial watchdog the Financial Conduct Authority (FCA).
According to the CMA, such consultancy firms currently “influence” half of all UK households retirement savings – by at least £1.6 trillion. For positive retirement outcomes, the CMA says it is essential these firms provide investment consultancy that meets expectations.
Through its investigation, the CMA found that half of pension schemes used the same provider for investment consultancy as for fiduciary management (asset management). The CMA says this leads to uncompetitive advantages over other firms, with one provider controlling the whole process.
John Wotton, chairperson of the CMA’s Investment Consultants Market Investigation, comments: “We’re concerned that pension schemes are not currently putting pressure on the market to get the best value for money on behalf of their members. They may lack the information they need to compare competing offers and so could be sticking with their existing investment consultant or fiduciary manager when there are better options available.”
The CMA has also found that pension trustees often don’t have sufficient information on investment fees or quality of service to make good judgements on a deal for their members. As a result, the CMA is recommending that all pension trustees must run a competitive tender when selecting a fiduciary manager in order to increase competition in the marketplace. Any trustee who has already appointed a manager without doing this must tender the position within five years. This is to reduce the competitive advantage that incumbent investment consultants have.
Firms will also be required to provide clearer information on fees and performance for other clients.
The CMA also recommends that the government “broadens the scope of the FCA” to ensure greater oversight of the industry.
Mr Wotton adds: “This is an extremely important sector that influences how well millions of people’s pension savings are invested, and it’s therefore vital we take steps to make sure that competition is working properly.”
So far, the response from the pensions industry has been positive.
Caroline Escott, policy lead, investment & defined benefit at the Pensions and Lifetime Savings Association, comments: “With millions reliant on pensions to fund their retirement, it’s crucial we have an investment market that works efficiently and transparently, and serves the interests of both pension schemes and savers. This investigation is an important step in helping pension trustees recognise when their investment consultants and fiduciary managers are performing well, as well as understanding what actions to take when they are not.
“One of our members’ main concerns about this market is the potential conflict of interest when investment consultant firms steer their pension schemes clients to their in-house fiduciary management services. Given the CMA’s findings in this area, we therefore welcome broadening the Financial Conduct Authority’s oversight of investment consultants.”
Steven Cameron, pensions director at Aegon, adds: “With the many parallels and overlaps with other parts of the financial services industry, it’s not surprising that the CMA is recommending to government that investment consultants and fiduciary managers are brought within the FCA’s regulatory perimeter. This will ensure they can be subject to equivalent standards as other FCA-regulated firms active in these areas, including disclosure of information to better enable fees and performance comparisons.”