Pensions 

Watchdog finalises pension trustee reforms

Watchdog finalises pension trustee reforms

Pension trustees now have six months to ensure their practices are in line with the Competition and Markets Authority's changes to the investment consultancy and fiduciary management sectors, following the final steps of the watchdog's reforms implemented this week. 

The changes follow an investigation by the CMA which found certain features of the market had led to "signifiant competition concerns", meaning trustees continued using an investment consultancy for fiduciary management even if a better deal was available elsewhere.

The watchdog also found investment consultants which offer fiduciary management services had an advantage when it came to getting business from existing clients, as they were able to steer customers towards their own services.

Yesterday (June 11) the CMA issued a legally-binding order, finalising its reforms which it hopes will encourage pension trustees to make "better decisions" for £1.6trn of retirement assets they oversee and incentivise them to "shop around" to ensure they get the best deal. 

Pension scheme trustees who wish to delegate investment decisions for 20 per cent or more of their scheme assets must now run a competitive tender when first purchasing fiduciary management services, meaning they must ask at least three fiduciary managers to bid for their work.

The CMA stated this requirement should allow trustees to select the "best deal for their needs" rather than solely using the fiduciary management service offered by their investment consultant without exploring alternatives, which the watchdog found evidence of in its original investigation. 

The changes also require pension scheme trustees who have already appointed a fiduciary manager for 20 per cent or more of their scheme assets without a tender to put the service out to tender within five years. 

Fiduciary management firms must now provide potential new customers with more information on their fees and performance, so they can easily compare service providers, and offer more information on their fees to existing clients. 

John Wotton, chairman of the CMA investigation, said: "Millions of people rely on pension scheme trustees to invest their savings effectively – which is why it’s so important that trustees shop around for the best deal for them.

"Our investigation found that many trustees lack the information needed to assess and compare investment consultants and fiduciary managers, meaning they may not be getting the best value for their members’ money."

Mr Wotton added: "By putting the requirements of our investigation into law today, we will increase competition and make sure these markets work better for UK pension beneficiaries."

Trustees, fiduciary managers and investment consultants now have six months to ensure their practices are in line with the CMA's requirements, but the watchdog warned those found not to be complying with the changes could be taken to court.

When the proposed changes were first announced in December last year the pensions industry generally voiced its support of the reform, hailing it as highlighting the "continued need to drive up standards of governance across schemes". 

rachel.addison@ft.com

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