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A response to Henry Tapper’s Blog

We at The People’s Pension like to challenge, and be challenged. Holding each other to account is key to improving pensions for everyone.

However, for this dialogue to be effective, it needs to be accurate. Below we set out why Henry’s article is potentially misleading in both the general light it casts and in the detail. 

General comment

As an organisation we are passionate about transparency and keeping things simple for our members  – these are the foundations on which The People’s Pension has been built. Since its launch, we have been one of the only schemes which operated a single annual management charge for members inclusive of all operating expenses (known as the Total Expense Ratio) with no other fees or penalties.  

In addition, we are supporters of the disclosure of transaction costs incurred by fund managers with whom pension providers invest their members’ money.

We are working with the third-party fund manager with whom we invest our members’ money, State Street, to ensure that all transaction costs incurred in managing that money are disclosed. However much as we might like it to be the case, delivering the full transparency of costs for which we have asked is not an overnight exercise. We invest our members’ money in a fund of funds. This requires a more complex disclosure process than fund managers’ systems have in the past been designed to deliver. 

One might imagine from the article that we were being singled out because we are behind  the industry regarding transaction cost disclosure. In fact, we expect to be amongst the earliest adopters of full transparency of transaction costs to our members.

Specific comment

Henry Tapper’s article makes some specific points which are either not accurate or not appropriate.

“State Street tend to retain stock lending for their own purposes” [Phrases are paraphrased for brevity]

This is not correct. Income generated from securities lending is allocated 70% to the funds (ie the members) and 30% to the lending agent as is the case for all State Street’s Managed Pension Fund clients. State Street takes on all the counter party risk and pays all the costs associated with the lending programme.

“These stock lending fees do not benefit the member”

This is not correct. The 70% revenue allocation goes to the members’ funds. From when fund management was changed to State Street (20 January 2016) up to 30 June 2016 the net contribution to the performance of our default Global Investments (up to 85%) Shares fund was c. 1.8 basis points. This was of direct benefit to members whose funds are slightly larger than they otherwise would have been.

“B&CE are the only IGC whose IGC statement I have not read (I can’t find it)”

The B&CE IGC Statement is located on the B&CE website in the section that deals with the relevant pension scheme, Easybuild. The People’s Pension is a trust-based scheme and does not have an IGC.

“LGIM are transparent. State Street aren’t”

We disagree. State Street are transparent. The People’s Pension members get 70% of any revenue, the costs are taken care of separately by State Street and do not fall on the member, and, critically, State Street bear all the counter party risk. A percentage division of profits is clear and transparent.

We invest with Managed Pension Funds Limited (SSGA’s UK vehicle for pension fund investors).  They produce a quarterly fact sheet that provides full details on the State Street Lending programme, including details of what percentage of the fund is on loan and the contribution to the performance of the funds over the period.  They also state how the revenue from securities lending is split. So we know exactly what is going on.

“We must assume that no news is good news”

We are working hard on plans for full transparency of transaction costs which we believe will advance the whole transparency agenda and our Trustees are fully committed to supporting this work. We will talk more widely about these when we are ready to do so.

“Management are being over-rewarded”

We work at a not-for-profit for many reasons, but financial ones certainly are not top of the list. With no shareholders, the interests of our members have dominated B&CE’s (the provider of The People’s Pension) decision-making for 75 years and this remains the case.