New analysis finds that over 80% of scheme managers believe more needs to be done to educate trustees on cost transparency

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80% of scheme managers claim not enough is being done to educate trustees on cost transparency. 

The survey of 100+ pension professionals, also revealed the current sentiment on cost management with 32% of respondents either not knowing if they did, or explicitly do not factor in transaction costs when reviewing asset managers.

Education

Following an hour long educational session with the trustees, there was a 30% increase in the number of attendees saying they would now scrutinise investment costs, including transaction costs, when evaluating their asset managers, now that they had a better understanding of the subject and the associated benefits.

Cost transparency can offer a comprehensive overview of a pension scheme’s administration and investment costs, providing a holistic understanding of the underlying costs incurred within a scheme.

Access to this information can help trustees make more informed decisions analysing their cost data, in context of the pension scheme strategy and/or performance of their existing or potential asset managers.

The benefits of widespread cost transparency implementation by pension schemes has been made clear in the Netherlands. Analysis found that the average Total Cost of Ownership (TCO) per pension scheme it services has decreased by 37% between 2015-2016. These findings coincide with the introduction of a cost transparency framework, and widespread consolidation of Dutch pension schemes.

There has been an increasing focus on cost transparency over the last 2 years in the UK, with the FCA forming the IDWG, a cost transparency industry task force, in late 2017. The IDWG was tasked with developing a workable industry wide standard template for the collection of costs.

The PLSA are now leading the way with the announcement of the Cost Transparency Initiative (CTI), supported by the Investment Association (IA) and Local Government Pension Scheme Advisory Board (LGPS SAB).

The CTI will be responsible for the new cost transparency framework going forward, ensuring a smooth implementation process hand managing the ongoing maintenance of the templates. The templates will give trustees a clear and standardised approach to monitor and scrutinise costs across their suppliers.

An industry push is needed to ensure that the various market participants are aligned. However, only with sufficient education will cost transparency be properly and successfully implemented in the UK.

Pat Sharman, UK Managing Director of KAS BANK commented: “We are committed to supporting UK pension schemes, to both educate them on the subject of cost transparency, and support the collection, analysis and reporting of costs and charges, helping them to meet their governance and regulatory obligations.

We are delighted that the PLSA are leading the way, supported by the IA and LGPS SAB, with the announcement of the CTI, which will provide the pension industry with a much-needed standardised framework to ensure consistency and clarity on costs and charges”.

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