The combined impacts of low interest rates, participants living longer and changes to the retirement plan market in the U.K. means pension funds must “invest smarter” to ensure value is delivered to participants, said Ruston Smith, chairman of the National Association of Pension Funds.
“It's about the recognition that, in a low interest (rate) world, every pound lost in inefficiencies or excessive charges is a pound lost in return,” Mr. Smith said in opening the NAPF investment conference Wednesday in Edinburgh. Mr. Smith is also group pensions director of Tesco PLC, Cheshunt, England, which has a £8.4 billion ($12.6 billion) pension fund.
Mr. Smith said the NAPF is looking at the investment value chain, and how to ensure value for money for pension funds and their participants. The first step has been to conduct research, achieving clarity on the fees that pension funds pay for various investment strategies.
He said that one “surprising” result has been the “material differences in base fees” for certain allocations. For active global equity allocations, fees range from 45 basis points to 90 basis points. For active real estate, the range is from 32 basis points to 200 basis points.
“When you think about it, how the difference in fees can compound over the years, we can perhaps create major rather than marginal gains,” Mr. Smith said.
Mr. Smith also repeated the NAPF's call for the U.K. government to issue more long-dated and index-linked gilts to “replenish the anorexic supply at the long-end of the gilt market.”