UK CMA proposes pension investment reforms

• about half of pension funds use the same firm for investment advice and fiduciary management;
• only a third of pension funds require firms to compete for their business, meaning that there is little competitive pressure on fees and performance; and
• pension funds often don’t have enough information to judge whether their fees are fair, or to assess the quality of service they are receiving.

In response, the CMA recommends a number of reforms, including requiring pension funds to run competitive tenders for these services, enhancing fee and and performance disclosure, and developing new guidance for pension funds to oversee these providers. It also recommends that the UK Financial Conduct Authority (FCA) be given greater oversight of the sector.

“We’re concerned that pension schemes are not currently putting pressure on the market to get the best value for money on behalf of their members. They may lack the information they need to compare competing offers and so could be sticking with their existing investment consultant or fiduciary manager when there are better options available,” says John Wotton, chairman of the CMA’s Investment Consultants Market Investigation, in a statement.

“This is an extremely important sector that influences how well millions of people’s pension savings are invested, and it’s therefore vital we take steps to make sure that competition is working properly. That’s why we’re proposing a number of important reforms to the sector, including requiring pension trustees to run a competitive tender when they choose a fiduciary manager and ensuring that trustees have much better information about fees and investment performance,” he adds.

In a statement on the report, the FCA says, “The CMA’s provisional findings about pension schemes trustees’ limited ability to drive competition between investment consultants and fiduciary managers are significant. These services matter because the firms involved provide advice and services to the pension schemes which so many consumers rely on.”

“We look forward to reviewing the CMA’s detailed findings and suggested remedies, including their recommendation to extend the FCA’s regulatory perimeter, and will continue to work closely with the CMA in the coming months as the remedies are finalized,” the FCA adds.

Comments on the proposals are due by Aug. 24. A final report from the CMA is due by March 13, 2019.