Pensions reduced in value as trustees pay excess fees

IMAGINE PAYING into a pension to ensure as good a retirement as you can afford, yet discovering that the trustees who are meant to safeguard your interests have not been doing their duty.

Millions are contributing regularly to a private pension, either directly or through an employer- based scheme. The money is usually placed in a trust which accepts, monitors and later pays out the enhanced proceeds.

Most trustees use investment consultants for two stages: to advise which asset classes and funds to invest in and then to pass such key decision- making to ‘ fiduciary managers’.

Frequently the same firm secures both roles. It may be that different personnel within the consultancy are involved but the risk of collusion is great.

The Competition and Markets Authority ( CMA) discovered that around half of all pension schemes use the same company and that the consultant handling the fundamental investing strategy “can steer” trustees into one shop.

Instead of demanding an end to such duality, the CMA has ordered that a tendering process takes place for the fiduciary, which currently only happens in 34 per cent of cases. This is a one- offer requirement which means the circadian practice will resume.

The lack of such comparison between consultancies means there is little competitive pressure on either performance or fees.

However, the CMA has conceded: “We think the problems ... are likely to result in material harm to customers by, for example, higher prices and a lower quality of service.”

Yet the CMA has clearly not thought the process through. It does not realise the low level of engagement among trustees despite the fact they are in place to act in the best interest of members.

In the long term, trustees will have paid fiduciary managers excessive fees which will reduce the money available to pay pensions.