CMA announces reforms to pension investment sector

The CMA first began an investigation into investment consultants who advise pension trustees in September last year at the request of the FCA.

It found competition problems with a number of investment consultants, who have influence over half of all UK households’ retirement savings and advise on pension scheme assets worth £1.6 trillion.

The investigation found that many pension trustees choose their existing investment consultant to be their fiduciary manager even if a better deal may be available elsewhere, with only a third of trustees asking fiduciary managers to compete for their business through a tender.

Investment consultants who offer fiduciary management services also have an advantage when it comes to getting business from existing clients, as they are able to steer customers towards their own service.

The CMA also found that many pension trustees do not have sufficient information on the fees or quality services to be able to judge if they’re getting a good deal from their existing provider.

As a result, the CMA says pension trustees’ are unable to effectively compare all their options which "could lead a worse deal for pension trustees and the people whose pensions they manage".

The CMA will now require a number of changes to these markets to deal with its concerns.

Pension trustees who wish to delegate investment decisions for more than 20% of their scheme assets to a fiduciary manager must run a competitive tender with at least three firms.

Additionally, trustees who have appointed a fiduciary manager without a tender must put the service out to tender within five years.

Fiduciary management firms must also provide potential clients with clear information on their fees and use a standard approach to show how they have performed for other clients.

The CMA recommends that The Pensions Regulator produces new guidance to help trustees with these services and that the UK Government broadens the regulatory scope of both the FCA and TPR, to ensure greater oversight of the sector in the future.

Implementation of the new requirements is expected to begin in 2019.

John Wotton, chair of the CMA’s Investment Consultants Market Investigation, said: "This is an extremely important sector that influences how well millions of people’s pension savings are invested, yet we’ve found that many pension trustees may not be getting the best value for money for their members. Some lack the information they need to compare providers and so could be sticking with their existing investment consultant or fiduciary manager when there are better options available.

"It’s therefore imperative we make these changes so that the sector works better for those it is meant to support – pension scheme members."