Show evidence of active management benefits - Myners
UK - Paul Myners, chairman of the Personal Accounts Delivery Authority, has hit back at criticism of the body's low-cost accounts regime, and warned officials are unlikely to sway from adopting passive investment strategies.
Speaking at the National Association of Pension Fund (NAPF) investment conference in Edinburgh on Friday, Myners said it was still the aim of the delivery authority - a body tasked by the UK government with creating a retirement accounts system for launch in 2012 - to create low-cost pre-retirement accounts and has yet to see evidence indicating higher cost active investment strategies would substantially improve investment returns.
His comments follow those the previous day of Todd Ruppert, chief executive of T.Rowe Price Global Investment Services, who argued the personal accounts regime would not work if the total cost to the end user is 30 basis points because, he argued, this would not attract the talent required to deliver good returns on investments. (See earlier IPE story: PADA warned 30bp accounts will lower returns)
Myners said in a speech he would "caution ministers to avoid adding elements which will increase the cost burden" of personal accounts and stressed he believed in "a passive management style being at the heart" of personal accounts, as he does not believe active management would benefit individuals - contrary to the opinion of Ruppert.
"I note with interest the comments from Mr Ruppert. My challenge to Todd Ruppert would be to present evidence through research on whether there is any correlation between higher costs leading to higher returns," said Myners.
"My contention is it doesn't work. The impact of keeping your costs down can have very, very powerful and real impact. If Mr Ruppert can evidence that paying more money will lead to higher pensions it would be a very useful contribution to the debate."
He continued: "I am absolutely convinced the low costs are key. There is evidence where managers could deliver areas of super alpha. If you can find these managers, you should probably appoint them and pay up, but in the vast majority of places, low cost is critical. We will not deviate from that."
At the same time, Myners noted no decision has yet been made on the actual cost of personal accounts to the individual, stressing whether it should be 30 basis points, 50bp or any other level "it is too soon to be precise".
PADA has so far deviated from discussing the amount at which accounts will be charged as the body is currently consulting the pensions industry to find out how charges should be paid - a process NAPF officials say they will soon contribute to as the relevant committee is discussing the matter this week.
PADA is planning to look later in the year, however, at issues concerning the default fund for registered individuals, said Myners, and consult widely to ascertain what format funds should adopt.
Individuals will also be sought later this year to help PADA creating a management and trustee committee for the personal accounts regime, as the system - though anticipated to have be the largest defined contribution (DC) scheme in the UK by 2050 with a potential £200bn (€275bn) in assets - will be run along the same legal framework as existing occupational DC schemes.
"The investment strategy will ultimately be a matter for the trustees. PADA will eventually give way to the personal accounts board. We will be doing the proprietary work but the investment decisions will be taken by trustees at a later time. And the investment options should be designed with the members in mind. They should encourage participation, should respect member preferences, and we are committed to low costs and to minimising the employer burden.
"We'll consult on the design of the default fund, as they have similar issues to those of a DC scheme and insurance company: what do you offer as a default fund? We will consult extensively. The design of the default fund is going to be very, very important. We will almost certainly offer one balanced fund, but whether there will be some related to the portfolio construction of risk and return is too early to say," he added.
Have Your Say: In reply, Todd Ruppert, chief executive of T.Rowe Price Global Investment Services, said:
"Myners is looking ONLY at investment management and not considering the critical importance of communications. Focusing only on the 30 basis points of investment management cost is like a discount dress that may not stand the test of time and not telling the buyer anything about how, when and where to wear it."
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