A recent survey has shown that pension schemes in the UK are beginning to experience tangible benefits from having greater transparency of their investment costs – 79% of schemes are now making use of standardised templates and tools developed by the Cost Transparency Initiative (CTI), up from 56% in May 2020.
The CTI framework, an initiative between the Pensions and Lifetime Savings Association (PLSA), the Investment Association (IA) and the Local Government Pension Scheme Advisory Board (LGPS AB), is an industry standard designed to allow investment managers and asset owners to collect and compare costs and charges in a standardised and transparent way.
The initiative provides clarity for asset managers about what data to supply and allows pension schemes and asset owners to compare costs between managers and drive better value for their savers and investors.
The CTI conducted a survey of 43 schemes and intermediaries between 22 October and 13 November 2020 and was supplemented by qualitative interviews between November 2020 and January 2021 with pension schemes, intermediaries (including utilities and consultants) and asset managers.
The aim was to understand how well the CTI framework has been adopted and to identify possible areas for improvement or development.
The quantitative research found two thirds (64%) of those using the framework had reviewed costs and value for money as a result of the information received, with one in five (20%) saying they had acted on the costs and charges information received. One in 10 (9%) had reviewed their asset allocation.
When asked whether the CTI framework will deliver benefits to the scheme, 71% agreed, none disagreed, and three in 10 (29%) were neutral.
The majority surveyed (89%) found the CTI framework easy to access, easy to understand (74%) and that the format suited the needs of their organisation (70%).
Among those who have used the main account template, most schemes and intermediaries have found useful the detailed breakdown of costs by line item (74%). Half (53%) also found useful the analysis of transaction costs by each asset class, while two in five (42%) found the non-cost information in the portfolio investment activity section useful.
The research has highlighted several issues and areas for improvement including the templates’ limitations in capturing charges associated with property funds, illiquids and funds of funds.
Also identified was a need for additional promotion and guidance to improve understanding, particularly around timescales for completing CTI templates and how to calculate specific types of costs in a specific way.
The CTI is already working to address these issues with technical updates. It will also publish additional case studies later this year to help schemes understand how best to make use of CTI data and to challenge their managers where appropriate. The CTI will also be considering whether further guidance can be provided in relation to benchmarking costs information and how this might relate to value for money more widely.
The templates and guidance required to adopt the standards are completely free to use and downloadable from the CTI website, where further details and case studies can also be found.
Mel Duffield, CTI’s chair and PLSA policy board member, said: “In a challenging investment environment post pandemic, understanding costs is as important as ever. The expectation continues to be that the CTI framework becomes the standardised way of reporting investment costs, right across the pensions industry.”