Pension Charges, What you don’t know them and why they Matter - David Pitt-Watson, Executive Fellow in Finance at London Business School

1. Pension Charges
What you don’t know them and why they Matter
David Pitt-Watson
18th June 2015

2. Costs Really Matter
• A 1% per annum charge will reduce a
“standard” pension by 25%
– Evidence suggests that people don’t understand
this very well
• Need for better information
– Especially at point of sale?
• Or professional oversight?

3. No-one knows the full cost of pension
management
• FSCP Study
• Complicated by different types of cost (at least
25)
– Of charging
• Spreads
• Structured products
– Of income
• Stock lending, custodial
• Effects on market of fund management
• Market Impact, High Frequency Trading

4. Hidden Costs can be high
• Railpen reckons several times
• Easy to believe that they double declared cost
• This is a “leakage” of billions of pounds
– Especially where there is a sophisticated
investment strategy.

5. Does this Matter
• You could argue that costs are just rolled up in
investment returns.
– But you would still want to know them
• If you can’t measure you cant manage.
– The customers’ yachts?
• Without a knowledge of costs, all actuarial
assumptions questionable
• There is no other (legitimate) industry where
such opacity in charging is allowed.

6. Getting Practical
• Remember at 1% more per annum, the amount you will
need in your pension pot will need to be 33% higher. So….
• Ask about costs. Don’t be surprised if getting answers is
heavy sledding
• Encourage and participate in industry initiatives
– NAPF
– IA
– Others
• Join the Tomorrow’s Investor benchmarking study
• Ask for standards
• Recognise this is a journey, not a destination