Sorry, came over a bit Daily Express there…

A few stories have been smashing into each other (in my head, at least) over the last few days. First, LV= (how I do hate that equals sign) dipped a toe into the post-RDR insured pension space with their new low-cost adjunct to their SIPP.  The trolls burbled a bit about it not being a SIPP because you can’t wrap a dark chocolate KitKat or a crushing sense of disappointment or whatever inside it, but it’s an interesting move.

At the same time, the gnomic Phil Young has been musing on transparency and pointing out that it’s not enough to just show charges – what those charges do and where they go to is important too.

And as if that wasn’t enough, the fund-transparency-charge issue has started rearing its head again. Paul McMillan’s leader in Money Marketing is a good summary of the issue.

So transparency is definitely a thing, as are pensions. @OldSkoolAdvice and @ClassLifeOffice (follow them on Twitter if you don’t already) will be shaking their heads in disgust.

Given all that, I’m left wondering quietly, in my own little way, whether the pension market is as evolved in terms of charging as it might be. We see tools like AdviserAsset and Synaptic Comparator trying to pick up all the nibbly bits of charges  (switching etc) on platforms, but pensions whether insured or not are just as relevant. So to borrow (unfairly) LV’s product, when is 0.25% not 0.25%? When you try and do anything more than stay within a narrow set of boundaries, that’s when.

Terry Huddart of Nucleus has written persuasively on the Ryanair school of charging, where a low base cost gets you through the door and then if you so much as scratch your left buttock you’ll find an extra charge for it. Based on his analysis, year 1 charges for a £150,000 pot range from just over 1% to over 5%. There are lots of ifs and buts inside those figures, but it’s true that there are two clear camps in the market.

Camp 1 stays agnostic on investment and says ‘this is what you pay for your wrapper/platform irrespective of how you invest’. Camp 2 says ‘oooh, well it depends’ and varies by investment type. For the uninitiated, this variance is often linked to insured or mirror funds, where the lifeco normally has 2 or 3 other ways of making margin over and above the stated AMC of the funds.

Allied to that is the variance of charges for entering drawdown plus annual drawdown charges and sometimes even charges on each income withdrawal.  Again, Camp 1 generally tries to keep things simple and Camp 2 tries to break things down per transaction.

So who’s right? The idea of Camp 1 is to simplify the process and provide a catch-all cost that covers you for most eventualities. It may not be the most optimised in terms of clients who will never, ever, ever do anything except sit in a limited fund range and behave themselves really well, but there is a value in simplicity.

Camp 2 expects each investor to bear their own load of charging. It’s probably fairer, but it is harder to understand, virtually impossible to compare and is – frankly – a bugger to manage. It is also the case that once you show providers an inch, they’ll take a mile, and the ancillary charge sheet stops being about covering admin cost and becomes a profit centre in its own right. Most of the charges are a crashing together of spurious Activity Based Costing analyses done by actuaries with time on their hands (most of them at the moment) and what the market will bear – the ‘squeeze ’em till the pips squeak’ model of charging.

To nail my colours to the mast, I’m a fan of camp 1. Charging doesn’t have to be about being the cheapest, but it should be fair and easy to understand. I’ve been in and around pensions for 16 years and I struggle to understand the charges that an investor will face on a mixed portfolio, taking income in quite a few retail and platform products.

The pension and platform industries need to stop developing propositions or products or charging structures that cover them, and start thinking from the customer’s point of view (and, Anonymous Life Office, just calling your charging ‘simple’ doesn’t make it so). Mixing ad valorem and flat fees on charge sheets 4 pages long is a recipe for problems, and just leads to greater chances of the Sexpress or the Daily Fail running the next ‘pensions rip-off’ story.

You want the world to stop being about charges and a race to the bottom? Make it simple, easy to understand and easy to compare and you will be rewarded. Try to hide charges under a veil of pseudo-transparency, and you will become increasingly irrelevant. Advisers are having to live in the new world. It’s time providers did too.