IMA responds to the OFT’s study on workplace pensions
The Investment Management Association (IMA) has responded to the publication of the Office of Fair Trading’s (OFT) pension market study. It confirms the IMA’s position on the need for greater consistency and transparency in charges and transaction cost disclosure, and it supports the IMA’s emphasis on the importance of improved governance in defined contribution (DC) schemes.
Costs and charges
Comparability of charges combined with transparency in areas such as transaction costs is critical. On charges, EU fund regulation offers a useful conceptual approach in the form of the Ongoing Charges Figure (OCF), calculated and presented in a comparable way in every UCITS. Pensions are clearly not the same as investment funds, but they need their own equivalent of the OCF, ie. a consistent standard that cannot be disputed.
On transaction costs incurred in the investment process, the IMA has undertaken two key initiatives. The first was to produce the Enhanced Disclosure Guidance, implemented this year. The second is the proposal for pounds and pence disclosure of charges and transaction costs at a unit level, currently out to consultation as part of the SORP (Statement of Recommended Practice) revision process.
Governance
Given the relative weakness of consumers and employers in this market, it is right to ensure alignment of interests in the governance process. At the same time, although alignment is necessary, it is not a sufficient condition for ensuring that DC schemes are of good quality and meet the expectations of scheme members. The IMA believes that additional mechanisms are needed to promote quality of governance, but does not accept that the legislative route is the best one to take in this respect.
As the OFT highlights, the IMA is currently in the early stages of developing a process for ensuring quality in the default strategy. Such a process would take the form of a specific quality check which can demonstrate in a consistent format that such arrangements are fit for purpose [1]. This check would cover key areas such as documentation of responsibilities, objectives, implementation and review. Default arrangements would need to meet a number of minimum requirements.
The IMA has already undertaken some preparatory work on this in consultation with other stakeholders and with regulators, and plans to take this forward in the coming months. The intention is that this should not be a significant additional burden for schemes or providers, and will be a way to help employers and ultimately scheme members.
Jonathan Lipkin, Director of Public Policy at the Investment Management Association (IMA), said:
“The OFT report supports our view that there is much more to do to ensure the defined contribution (DC) pensions market has the full confidence of Government, regulators and, most importantly, consumers and employers. We have argued for the need for greater consistency and transparency in charges and transaction cost disclosure and we welcome the emphasis on the importance of improved governance in DC schemes. In both areas, the IMA has already taken significant initiatives to achieve positive change. We will continue to do so, working with our colleagues at the ABI and the NAPF, as well as all other stakeholders to help make automatic enrolment and the broader transition to DC a success.”
Notes:
[1] Further details about the IMA’s proposed process for ensuring quality in default strategies can be found in the submission to the Department of Work and Pensions’ (DWP) call for evidence on quality standards in DC workplace schemes.
