Cost transparency initiative delivering tangible benefits as take up increases, says PLSA

Pension schemes are beginning to experience tangible benefits from having greater transparency of their investment costs as a recent survey reveals 79 per cent of schemes are now making use of standardised templates and tools developed by the Cost Transparency Initiative (CTI), up from 56 per cent in May 2020.

The CTI framework, a partnership initiative between the Pensions and Lifetime Savings Association (PLSA), the Investment Association (IA) and the Local Government Pension Scheme Advisory Board (LGPS SAB), is an industry standard designed to allow investment managers and asset owners to collect and compare costs and charges in a standardised and transparent 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 and drive better value for their savers and investors.

The CTI conducted a survey of 43 schemes and intermediaries between 22 October and 13 November 2020. This survey was supplemented by qualitative interviews between November 2020 and January 2021 with pension schemes, intermediaries (including utilities and consultants) and asset managers. The aim was to understand how well the CTI framework has been adopted and to identify possible areas for improvement or development.

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 quantitative 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 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. The CTI will also be considering whether further guidance can be provided in relation to benchmarking costs information and how this might relate to value for money more widely.

The templates and guidance required to adopt the standards are completely free to use and downloadable from the CTI website, where further details and case studies can also be found.

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.”

Jeff Houston, Board Secretary, Local Government Pension Scheme Advisory Board, says: “The CTI templates continue to provide a vital element of the Board’s Code of Transparency and are instrumental in enabling online submissions via the Board’s compliance and reporting system. In particular, the availability of standard templates was  pivotal in a disclosure rate of 96 per cent for costs relating to 2019-20 in what was a very difficult year when priorities were understandably elsewhere.

“There remain gaps in understanding of the templates and technical difficulties in their completion as well as uncertainty on how best to make use of the increased cost data but, without doubt, the direction of travel to greater transparency is now set.”

Jonathan Lipkin, Director of Policy, Strategy and Research, at the Investment Association, says: “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.”