Mercer has welcomed the charging proposals suggested by the Department for Work and Pensions (DWP) report: ‘Better workplace pensions: a consultation on charging’. The consultancy supports moves towards transparency and believes that good schemes can be delivered within the 0.75% cap. Mercer is also calling for the introduction of an ‘energy ratings’ style information - similar to that used by electronics manufacturers - to help consumers better understand their pensions.
Despite some challenges around who will actually pay, Mercer fully backs the Guidance Guarantee. However, the timing of providing the guidance should be considered carefully. At Mercer’s online conference on 27 March, which analysed the impact of the budget, only 8% of the 440 DC scheme representatives attending felt that Guidance should be provided at retirement. 85% voted said the sweet spot was at some other point in the member journey; either 5-7 years before retirement or at some other ‘life event’. The balance (7%) felt guidance should be provided on joining.
According to Brian Henderson, Head of Mercer’s DC & Savings team, “Transparency is positive and we support moves that increase confidence in the UK’s pension system. We believe that an additional solution to improve transparency on charges would be to provide consumers with simple, visually creative and succinct information - similar to energy ratings on electrical appliances (Chart 1). This would give consumers clear guidance on how their pension charges stack up against the wider market. It will also ensure that costs are not the only factor that is taken into account when making a purchase.”
“We believe that decent schemes, providing pensions that people value, can be provided for 0.75 basis points. However, we need to avoid a drop in quality and introducing a cap means that some strategies, like Diversified Growth Funds, may now be on the wrong side of the charge cap. As with any purchase, ‘lowest cost is best cost’ can be a false economy in the long-run. We expect some asset managers will redesign their investment propositions in light of the cap.”
According to Mercer, higher charges towards the 0.75% cap should be accompanied by an explanation of where value is being added and Mercer is very supportive of the DWPs recommendations in ensuring a focus on value for money. ‘Value’ also reflects the ethos of the Pension Regulator’s DC Code, which exhorts trustees to look not only at charges but also to make value for money comparisons and assessments of fairness to members.
Mercer also strongly supports full and complete transparency and disclosure of all charges to trustees, employers and governance committees.
Notes for Editors
Mercer cites Diversified Growth Funds (DGFs) are cited as an example. In recent periods of market turmoil, DGFs have been successful in preserving members’ assets. They are less volatile than equities. They may lag during bull markets but they are often much less affected by bear markets than equities. This sort of strategy costs fund managers more than a simple single asset tracker fund. The consultancy also responded to the Department for Work and Pensions’ (DWP) consultation on ‘Better workplace pensions: a consultation on charging’
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