Pensions schemes are starting to see tangible benefits from the cost transparency initiative, with almost eight out of 10 scheme now using the the standardised templates and tool to help compare investment costs.
This is a significant increase since May 2020. Today 79 per cent are making use of this CTI framework compared to just over half (56 per cent) a year ago.
This CTI framework – a joint initiative between the Pensions and Lifetime Savings Association (PLSA), the Investment Association (IA) and the Local Government Pension Scheme Advisory Board (LGPS SAB) – sets out an industry standard to allow investment managers and asset owners to collect and compare costs and charges in a standardised form.
The initiative provides clarity for asset managers about what data to supply and allows pension schemes and asset owners to compare costs between managers, so helping drive better value for savers and investors.
Since the launch of the CTI framework in November 2018, awareness has grown and schemes are now moving from understanding why they should collect data, to collecting and understanding the data, to using the data to either review their assets or challenge their managers.
The research found some schemes are further along than others, with
those who are not using intermediaries, especially the smaller schemes, still in the ‘data collection stage’. Many, including intermediaries, are still in the ‘data quality assurance stage’ where they are reviewing and trying to understand the data received.
In terms of tangible benefits already being realised by schemes, the research found two-thirds (64 per cent) of those using the framework had reviewed costs and value for money as a result of the information received, with one in five (20 per cent) saying they had acted on the costs and charges information received. One in 10 (9 per cent) had reviewed their asset allocation.
When asked whether the CTI framework will deliver benefits to the scheme, almost three-quarters (71 per cent) agreed, none disagreed, and three in 10 (29 per cent) were neutral.
The majority surveyed (89 per cent) found the CTI framework easy to access, easy to understand (74 per cent) and that the format suited the needs of their organisation (70 per cent).
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 per cent). Half (53 per cent) also found useful the analysis of transaction costs by each asset class, while two in five (42 per cent) 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 said it 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.
Mel Duffield, chair of the Cost Transparency Initiative and PLSA Policy board member says: “The high level of uptake and growing awareness of the potential benefits show the CTI framework is making a significant impact on the market.
“As awareness of CTI reporting has increased, asset managers and intermediaries are working together to provide the information that schemes need to understand their costs and charges. This has already translated into tangible benefits for some schemes and we only expect this to gather pace through the course of this year and beyond.
“As we move into the third year since the CTI templates were first published, we will be doing more to encourage trustees to work with the templates.
“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.”
IA director of policy, strategy and research Jonathan Lipkin adds: “We are pleased to see very high levels of adoption of the CTI framework within the Investment Association membership. As a founding member of the CTI initiative, we are looking forward to working further with pension schemes to ensure the framework evolves in future years in line with their needs.”