Cost transparency is a crucial issue for schemes which has significant bearing on all aspects of scheme management. Disclosure of costs gives scheme managers a clear and detailed understanding of all incurred transaction, management and investment costs. This allows them to make an informed cost versus benefit analysis and inform future investment decisions.
01 Jan 2017
Recently, trustees have experienced significant tightening of the governance regime as The Pensions Regulator (TPR) is placing greater scrutiny on scheme managers in the wake of high profile corporate scheme failures and as pension deficits continue to mount.
Whilst the renewed pressure may bear fruit in the longer term it will undoubtedly make day to day life more onerous for trustees of UK pension schemes. Obliged to fulfil a long list of tasks, including determining the investment strategy, appointment of the asset managers, monitoring investment performance, member communications, ensuring full and accurate records are maintained and recommending appropriate action if the sums aren’t adding up it’s, perhaps, not surprising that cost transparency frequently falls down the list of priorities for trustees.
But in reality, cost transparency is a crucial issue for schemes which has significant bearing on all aspects of scheme management. Disclosure of costs gives scheme managers a clear and detailed understanding of all incurred transaction, management and investment costs. This allows them to make an informed cost versus benefit analysis and inform future investment decisions. In this way, it not only provides proof positive of good governance, but can also lead to markedly better investment performance in the long term. All of which has attracted the attention of the FCA which is currently undertaking a consultation on mandating greater pensions transparency.
Costs are not implicitly bad but what is misunderstood cannot be managed effectively and can cause problems in the longer term. Unfortunately, from a scheme representative’s point of view, establishing transparency has been complicated by the fact that historically, it has been hard to obtain costs from service providers. Even if the data can be captured it can be hard to present the data clearly enough to benchmark good performance and establish true value to scheme members.
But, as the march towards mandatory cost transparency gains pace, innovative technologies have emerged that make quick effective comparison a reality for UK defined-benefit pension schemes. Tools can help trustees gain a more forensic understanding of the workings of a scheme and improves insight into the management costs and the specifics of a scheme performance. How and if the trustees actually decide to then disclose this information to scheme members or act on this insight is entirely at their discretion but it does ensure they have the facts at their fingertips if they need to make an informed decision on future strategy.
As a scheme trustee myself, I know that with continued engagement and industry led discussion on the importance of cost transparency, scheme representatives will feel more confident in being able to demonstrate and use the comprehensive data provided by tools such as our cost transparency dashboard to prove that investment into concrete measures for better transparency lead to better efficiencies when managing schemes.
That’s why I think that, as the UK industry continues to evolve in its drive towards an improved attitude to cost transparency and its governance standards, it will be the schemes who embrace emerging technologies that will withstand any further industry developments.