Consumer champion Mick McAteer has attacked the pension industry for pushing products that have been made more costly by their complexity, warning GPPs should not be recommended where Nest is more suitable.
McAteer, who is a non-executive director of the FSA as well as director of the Financial Inclusion Centre, an independent, not-for-profit think-tank, told delegates at the Corporate Adviser Summit in Hampshire last month, that the financial services industry was failing to deliver quality for money on pension products. He said there were now at least eight layers of cost in the GPP product chain.
He warned advisers against recommending GPPs to employers from 2010 where Nest was a more suitable alternative, arguing the increased choices offered by private sector schemes simply increased costs, reducing member benefits overall.
McAteer said: “This is going to sound like heresy and you’ll hate me for saying this but in large parts if the financial services sector, there is actually an inverse relationship between price and quality. There is no evidence that any fund manager can actually outperform the market. I really hope this sort of myth of outperformance is actually put to rest. All things being equal, the higher the cost of access, the higher the distribution cost, and the reduction in value for the end user.
“If we get advisers and consultants coming along and saying to small employers ’that Nest thing only gives you five choices’ and they make it sound like a bad deal, that’s not the case. That’s a good deal. The fewer choices the better because you do not need anything more than about five or six choices to provide diversification. Any additional choice is actually quite spurious and simply adds to the cost of providing advice because the more choice you have, the more complexity you have, the further you push up the cost of advice as well so.”
“I can think of eight different layers of cost that stand between the scheme beneficiary and the firms in the capital market who are actually looking for investments to grow their own business. The more layers you have, the more distribution costs, the more search costs and so on. Unless those layers add value then by definition they must reduce value.”