With the New Year fast approaching, KAS BANK, the specialist provider of securities services to the UK pension industry, has outlined some of the biggest developments to the institutional pensions industry expected over the next year.
- Cost transparency is expected to develop significantly. Both the LGPS transparency code and FCA cost disclosure working group will continue to set the stage for greater cost transparency across the industry.
- Consolidation whether driven from the LGPS pooling or the PLSA taskforce papers, will 2018 be the year that large-scale consolidation is initiated?
- New technology and fintech solutions will continue to transform parts of the pensions industry, allowing for better pensions scheme governance
- Cost transparency
The industry will take further steps toward cost transparency in 2018 as more asset managers volunteer to comply with the Local Government Pension Scheme Advisory Board (SAB) ‘Code of Transparency’ (currently 24 volunteer managers are noted on the SAB website at time of publication). The code will lead to better alignment of interests between the LGPS and their asset managers. This will change the way investment costs are perceived and recorded for the LGPS, ultimately providing greater transparency and aiding good governance.
Following the establishment of the FCA institutional disclosure working group (IDWG) in September, the industry will be waiting to assess the group’s final recommendations due early 2018. The ambition will be to achieve consensus on a standardised cost disclosure template, with details as to how this will be used, how accuracy of reporting will be maintained and how it will be adapted for future use.
By 1st April 2018, we will witness one of the most ambitious reforms in UK pensions for many years, with the establishment of eight investment pools, consolidating the assets of 91 LGPS (England & Wales). The key target being to save costs, by giving them economies of scale when it comes to investment. While pooling investments may increase healthy competition between asset managers, the ultimate goal will be a reduction of fees, as funds co-invest with managers, whilst also improving overall scheme governance.
The PLSA set up the DB Taskforce in March 2016 to carry out a review of the various challenges faced by defined benefit (DB) pension schemes. Both the second and final reports examine the potential consolidation models for DB schemes, including the creation of a new ‘superfund’. The DWP has a job on its hands to work with the industry to potentially action these ideas and fully mandate consolidation, but the benefits for scheme members has been proven in countries where consolidation has already happened, if we are to learn anything from the Dutch experience this can only be a good thing.
- New technology and fintech solutions
2018 will see a surge of technological innovation and implementation in the pensions industry. Whether government or industry-led, technology will increasingly deliver solutions to help resolve the multitude of challenges faced by the pensions industry and scheme members. Fintech’s such as PensionBee (a platform that helps simplify and consolidate pension pots) will continue to materialise, alongside the increased focus on overhauling current governance processes for the better, improving reporting effectiveness.
We have already seen technology revolutionise the way that pension schemes can analyse and report on their costs, but in an industry still lagging behind other sectors in the pace of technological development, there is a still huge opportunity for innovation to be the big change-maker for 2018.
Pat Sharman, UK Managing Director, KAS BANK, said: “2018 is already shaping up to be a pivotal year for the pensions industry in respect of cost transparency. In the past 12 months, we’ve seen both industry-led and regulator-led efforts to improve investment cost disclosure for pension schemes. We hope 2018 will prove to be the turning point, when consistent and transparent reporting becomes the new normal.
“Increased fintech innovation will be perhaps the most anticipated development for the year ahead, transforming the entire pensions system from the member experience to better management of schemes for the future. There is a demand for accurate, transparent and timely information, which will assist trustees with more informed decision making, and we believe that only innovation and investment in technology will allow us to match that demand.”