by Rona Train, Senior Investment Consultant at Hymans Robertson
They are now full of detailed information on transaction costs (or at least they will be when these are finally available) and large amounts of information on things like the training the trustees have done and how they’ve made sure transactions have been processed in a prompt and accurate manner. Where a change of investment strategy has taken place, full details of the costs of this need to be provided. Costs and charges illustrations also need to be included for “typical” members (although in reality most providers are still not in a position to provide these).
Members are now faced with reports that can run to over a dozen pages full of numbers and jargon they are unlikely to understand - how many people really understand what is meant by anti-dilution levy for example? Even if they do, they currently have nothing to compare these directly against unless they start searching the web for the charges on other schemes. Over the longer term, comparative industry wide figures will inevitably become available as all Chair’s Statements will be available online but the concern remains that comparative statistics might not provide the full context – with a focus on charges, not outcomes, potentially being the primary driver of decisions.
For members who do take an interest, they could well see the numbers and decide they don’t like the charges on certain funds (e.g. the transaction costs on a property fund v an equity fund) and switch to something potentially inappropriate for their needs. Or indeed they may even transfer out completely to another scheme where the charges may, on the face of it, look lower without considering the costs of transition and the potential loss of employer contributions in their current scheme.
If even 1% of the membership of DC schemes read their Chair’s Statement, I will be surprised. But trustees are in the position where they need to provide huge levels of detail. TPR have made it clear that if information is not included in the Chair’s Statement with the correct wording – even if the trustees are actually doing the activity – their hands are tied by the underlying legislation and they must issue a mandatory fine. I’m all for ensuring that schemes are delivering the best value they can for members, and regularly testing how that value can be improved, but the way the Chair’s Statement has developed, in my mind, it is doing little or nothing to genuinely help member outcomes.
Indeed, it may – in some cases – be having the opposite effect. Our experience from helping our clients to complete the first set of Chair's Statements under the new Regulations has been that this is now a relatively costly and time consuming exercise. In many cases, it is taking up valuable DC budget which could otherwise have been spent on contributions or improving member engagement. Even if trustees decide to issue a summary of the Statement in their annual newsletter or as a separate document, this will be seen as an additional cost. Not to say anything of the fact that, depending on the number of funds offered and the activity throughout the year, the Chair’s Statement may be longer than the report and accounts itself.
So going back to my point at the start, what actually “gets results”? What improves member outcomes? Higher contribution rates, well designed default strategies and really effective member engagement. Whilst good governance is also a key determinant, in my opinion, the increasingly onerous governance regime is actually taking trustees’ attention away from the things that actually achieve better outcomes.
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