The Big Question

The question: Does the pensions industry need to replace AMC with a new way of expressing charges?

Tom McPhail, head of pensions policy, Hargreaves Lansdown

Yes. Not least because the confusion over the difference between annual management charge, total expense ratio and total cost of investing is easy for those wanting to make mischief against the pensions industry to do so.

There are organisations with commercial objectives to kick up a campaign and say they are marginally cheaper than the average. I can see why they are doing it, but just because they do does not mean charges across the industry are high.

You will always have problems in how you express portfolio management costs, because these will always be retrospective. It is also worth remembering that part of that dealing cost is stamp duty, which is a tax, not a rip-off charge from the industry.

We need to see greater transparency around charges in a way that gives the public the full picture, because if we do not, the pensions industry will remain an easy target.

David Pitt-Watson, chair, Hermes Focus Asset Management

Yes. People should know the AMC and the TER, which, unlike the AMC, includes all the charges in the fund such as legal and custodian charges. Should they also be told the costs of trading? That is more controversial. Work has been done for the Treasury that has shown this can work out as 3 per cent of the cost of the plan a year, so you would want to be able to show it somehow, and this could be reflected by showing how the fund had done against a benchmark.

But I also think we need to stop thinking in percentages, firstly because a lot of the charges are not percentage charges, but also because while a lot of people may understand percentages, people find the effect of compounding challenging. There is therefore a strong argument for reflecting charges in pounds, shillings and pence.

What I have described is what everyone gets in Denmark. This is achievable. We need to be aiming to give people the clearest possible information in the easiest form.

Robin Hames, head of technical, marketing and research, Bluefin

Yes. There needs to be a universal standard across all investment products, including Oeics, Isas and pensions that shows full disclosure of all costs in a uniform way. AMC is inadequate ad even total expense ratio does not give us the full picture. It is the fund management industry who need to come clean on this for pensions in the same way platforms are being required to unbundle their charges.

There may be 15 extra layers of charge in there, and they may or may not be microscopically small. We need to know, either way, so we can decide whether this is an issue or not.

Leaving aside its 1.8 per cent contribution charge, what I would like to know is whether Nest’s total cost is 0.3 per cent a year on its pension saving, or whether the total cost of investing is actually higher.

If the government wants to decry the industry for charges then it has the ideal vehicle with which to do it with Nest.