Only one in three UK pension schemes using fiduciary management have formal, independent oversight in place, despite regulatory expectations, according to XPS Group.

XPS noted that the proportion of schemes with independent oversight of fiduciary management had remained low and relatively unchanged for several years.

However, The Pensions Regulator and Competition & Markets Authority have emphasised the need for schemes to monitor delegated investment arrangements effectively and independently.

XPS warned that, without independent oversight, trustees and scheme members were heavily reliant on fiduciary managers to assess and report on their own performance, potentially limiting effective challenge and comparison against the wider market.

In its latest Investment Briefing, XPS highlighted that the lack of independent oversight was especially acute for smaller schemes, with cost often identified as a barrier, despite regulatory expectations applying regardless of scheme size.

To improve industry standards, the consultancy urged oversight providers to be structured in a way that ensured cost was not a barrier to good governance, particularly for schemes with assets below £100m.

It also called on oversight partners to provide clear KPIs, peer benchmarking, fee and terms analysis, and practical, actionable recommendations, and demonstrate how oversight leads to better governance discipline and decision making over time.

“We don’t let students mark their own homework, so why does the industry still allow fiduciary managers to assess their own performance?” said XPS Group head of fiduciary management oversight, André Kerr.

“We have seen numerous cases where scheme performance has been good despite the fiduciary manager, not because of them. Independent oversight is essential if trustees are to understand whether value is genuinely being added.

“With the majority of schemes still lacking formal oversight, there is a growing gap between regulatory intent and what is happening in practice. Fiduciary manager oversight should be treated as a core part of good governance, not an optional extra.”

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