Nearly a quarter of required pension schemes leaving FM re-tendering to last minute

Almost a quarter (23 per cent) of pension scheme trustees that need to re-tender their fiduciary management services had not started less than two months before the Competition and Markets Authority's (CMA) deadline, research from XPS Pensions has revealed.

As of 16 April, 37 per cent of those that needed to re-tender had completed the process, while 40 per cent were in progress, ahead of the 9 June deadline.

Of the schemes that had completed re-tendering, 81 per cent retained their existing managers and 19 per cent changed.

According to XPS, over 20 fiduciary managers (FM) reported only 248 schemes that needed to re-tender, compared to the CMA’s estimate of up to 500.

Of the CMA’s estimated 500 schemes, up to 100 have moved back to an advisory relationship with the remainder that did not need to re-tender being reclassified as not FMs or not required to adhere to the CMA order.

“XPS’ research suggests that many trustees have left re-tendering very late, with the 9 June 2021 deadline fast approaching,” commented XPS Pensions Group head of fiduciary management oversight, André Kerr.

“This could lead to a lack of choice for trustees. With 81 per cent of mandates staying with the incumbent fiduciary manager, it could suggest a box-ticking exercise. 

“However XPS’ experience of over 30 re-tenders XPS has found that every re-tender process has added value. Benefits to trustees have included, new improved investment strategies and significant reductions in fees (ranging from 10 per cent to 50 per cent)”

After polling the audience of a webinar this week, XPS found that five times more pension professionals thought the CMA order had led to better outcomes than those that disagreed.

Furthermore, 55 per cent of those surveyed believed fiduciary management appointments should be re-tendered every three to five years, compared to 40 per cent who disagreed and 5 per cent who were undecided.

“XPS believes these polls highlight the value pension schemes give to challenging the status quo and the value placed in regular reviews and ongoing effective fiduciary management oversight,” Kerr added.

XPS also published research on how FMs approach endgame planning, which found that many FMs were “largely untested” on de-risking strategies and helping schemes achieve long-term objectives.

XPS urged trustees to hold FMs accountable to the agreed long-term target, noting that FMs’ approaches to de-risking “varies greatly” and is impacted by scheme size, flexibilities in FMs’ approaches, and opportunity set.

“When appointing or reviewing an FM, trustees should consider their approach to de-risking and consider how they plan to achieve their scheme’s long-term funding objective,” XPS’ report stated.

“This is important to consider when appointing an FM – even if not an immediate concern – due to high barriers and costs of exit.”

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