Trustees need support during tender process to keep them free to focus on the right issues, says Caroline Escott, policy lead: Investment & Defined Benefit, PLSA.
A great deal of discussion has already taken place since the release of the Competition and Markets Authority (CMA) Investment Consultants Market Investigation - Provisional Decision Report back in July.
In the report, the CMA makes many welcome and sensible recommendations. However, one of the key areas for us is the tendering process for fiduciary management by pensions schemes.
While we were pleased the CMA did not introduce mandatory tendering in all cases (or even mandatory switching), we believe there is still work to be done around the choice of open or closed tendering. This view – supported by our members – led us to make a series of recommendations in our response on how the sector could negotiate its way through the issues at hand.
Ahead of our response to the CMA’s provisional decision, we completed a snapshot survey with our members that showed 82% supported the idea of mandatory competitive tendering on first adoption of fiduciary management.
We have also seen significant member support for the idea that any mandatory tendering process should be well-run with access to a broad range of suppliers, but also closed.
If the industry had a standard open tender process it could result in a high number of boilerplate responses from the supply-side. This could crowd out the other, more relevant, submissions. This could also result in a drawn-out exercise that does not make the best use of trustees’ time.
We believe it’s important that schemes are given the space to meaningfully navigate the tender process themselves. It’s for this reason that we’ve proposed a closed process accompanied by appropriate and efficient documentation. It’s vital that trustees can demonstrate that they ran a competitive tender – involving a range of suppliers – and show how a broad assessment of the market was undertaken.
This confusion could be avoided with appropriate, and well-tailored, guidance from The Pensions Regulator
There are also misperceptions around how lengthy tenders need to be. We know there is a variation in the quality of Requests for Proposal (RFP) documents produced by trustee boards, and significant levels of confusion surrounding how to run an effective tender process. It’s our belief that this confusion could be avoided with appropriate, and well-tailored, guidance from The Pensions Regulator.
Our members agree with us. In our survey, 81% of PLSA members said they would like a checklist produced to help them navigate the tender process. Two thirds also said they would appreciate best practice case studies and 60% said that templates for RFP documents would be useful as well as guidance on how to interpret information provided by potential suppliers.
There is still more work to be done. We need to ensure that any new rules on the tender process are implemented efficiently and that suitable guidance is available to help successfully steer those undertaking them.
Taking this approach could go a long way to ensuring trustees’ time is spent wisely and in the best interests of savers. It would put systems in place to help those charged with taking care of savings make the right choices and allow them space to undertake a competitive tender in the way which best suits their schemes and achieves the best value for savers.