Trustees face chairman’s statement transparency battle

Trustees face an uphill battle meeting the Pensions Regulator’s new requirement to produce a chairman’s statement because fund managers’ lack of transparency is obstructing their ability to assess whether members are being given value for money says LCP.

Speaking at an event in London yesterday LCP partner Laura Myers told delegates that sourcing detailed information on under the bonnet transaction and other costs would prove problematic, because many fund managers refuse to disclose these figures, yet trustees would have to source these figures if they were to fulfil their new legal obligations to produce a chairman’s statement each year.

From 6 April 2015, new legal requirements came into force for DC trustees to produce a chairman’s statement which explains how the trustees meet certain governance standards, including how they have achieved ‘value for money’ for members, a criteria that has no legal definition.

Production of the statement is mandatory, and the regulator must fine those schemes that do not produce such a statement.

Myers added that trustees would also face difficulty in getting bundled providers to separate out their costs for administration and fund management, but said it was worthwhile to push for this information as it could expose overcharging. She cited a case study of the scheme of a pharmaceutical company where LCP had identified an overpriced global equity fund by asking for a cost breakdown, and had subsequently been able to negotiate a 4bps reduction in charges, saving the scheme £150,000 a year.

Myers said: “Assessing value for money on transaction costs is going to be horribly difficult. There is no legal way to require managers to pass on this information.

“We don’t think these costs should fall within the charge cap, because we don’t want to constrain managers from doing the transactions they need to do, but we do need to know what these costs are.”