The UK's pension fund managers were challenged yesterday to calculate the damage done to savers every year by the industry's opaque and inflated costs.
As the National Association of Pension Funds opened its annual investment conference in Edinburgh with a debate on whether managers and advisers were giving value for money, David Pitt-Watson of London Business School said there was no way of knowing.
"We don't know because we are not told. If you ask, you might be told the average management charge or the total expense ratio, but the TER surprisingly does not include all the expenses - taxes, duties, spreads, foreign exchange and so on."
Mr Pitt-Watson, the former corporate governance champion at Hermes and now leading the 'Tomorrow's Investor' project for the Royal Society of Arts, said: "If you have got an extra 1% charge on the cost of your pension fund every year, then 25% of the end benefit is going to disappear. If you could reduce the fees in our DB (defined benefit) pension funds by 0.7% a year, that is the end of the deficit of DB funds. These things really matter and the evidence is we are not doing a good job."
Mr Pitt-Watson asked managers to join him in a pro bono initiative to uncover the full costs of pensions management across the industry, adding: "It is really difficult to manage things if you can't measure them."
Mike Cranston of L & G Investment Management, which has over a third of its assets in passive, indexed management, said the key value of managers was in engaging with companies to improve their behaviours and this in future would prove the "differentiator" in the industry.
Larry Fink, chief executive of BlackRock, called for "making an appropriate level of retirement savings mandatory here in the UK, without the opportunity to opt-out", on the successful Australian model. He said: "There is too much risk that people will either opt out, or not put enough away even if they remain in a plan."
Yves Leterme, deputy secretary-general of the OECD, told the conference all its 34 member states faced the same problems of lower returns, increases in life expectancy, and a cutting of contributions by employers in the shift to defined contribution schemes which put the responsibility on individuals. "Unfortunately the evidence… shows that most of the ordinary citizens are unable or unwilling to make choices because the financial literacy and knowledge of people is far too low."