Chris Sier, chairman of the institutional disclosure working group at the Financial Conduct Authority (FCA), has cast doubt over the effectiveness of the 0.75 per cent charge cap set up by the government for defined contribution (DC) funds.
In the first hearing of the Work and Pensions select committee inquiry on pension costs and transparency today (5 September) in Parliament, Mr Sier said setting up an arbitrary charge cap of 75 basis points was "nice" but not necessarily effective.
He said there was not enough information to conclude whether anybody was actually reaching or breaching that cap.
Since 2015, providers have had to cap the charges within default funds to 0.75 per cent of funds under management per year.
Last November, the minister of pensions and financial inclusion, Guy Opperman, said the cap was working broadly as intended and had helped drive down costs for members.
But Mr Sier said: "If you set a cap, and you don’t know what is in the cap, and what is out of it, it doesn’t matter what the cap is.
"The first thing we have to determine is what the cost is and then we can think how to manage it down.
"My experience of asset management is that setting up and operating a fund, particularly a simple fund, is a matter of a few basis points per annum.
"A lot of the additional costs come from the incremental technology infrastructure and layers of intermediation that are needed to do the job of asset management."
The institutional disclosure working group was set up by the regulator last year and at the time urged pension funds to probe the honesty of their asset managers.
The group published its initial recommendations last month, proposing five templates for asset managers to fill in, which will cover charges associated with most asset classes.
The templates will be published by the FCA in the autumn, but are not compulsory to use.
Andy Agathangelou, founding chairman of the Transparency Task Force, a body campaigning for more transparency in financial services, said at today's hearing the Department for Work and Pensions and The Pensions Regulator had done some "tremendous work" in protecting consumers from adverse costs in occupational DC schemes.
However, he warned against neglecting the DB market.
He said: "There has been relatively little work done in protecting the member from costs in the defined benefit (DB) market.
"Some say that is not a problem for the consumer, that’s for the employer. But the two are very closely connected, because the better well-off the employer is, the more scope there is for the employer to give better benefits, protection, security and pensions to the individual.
"There is a huge piece of work to be done on cost disclosure in the DB market."
Mr Sier explained to the committee there would always be a pool of asset managers that would "either refuse or decline to give data" on their costs, for three reasons.
He said: "One is that they genuinely have something to hide.
"The second is that they are so operationally complex that they are unable to easily give the data, and so it is easier for them to say no. Any asset manager which has acquired other asset managers in the past decade could well face this problem.
"The third reason is that there is almost a reluctance to do it, because it was never done before, and the data is ours and we know better than you."
maria.espadinha@ft.com
