Watchdog Investigates Pension Advisers’ Conflicts of Interest

UK competition regulator the Competition and Markets Authority (CMA) is conducting an independent investigation to see if there are any market features that prevent, restrict, or distort competition, according to the Financial Conduct Authority (FCA).

The investigation covers investment consultancy services, which provide advice to employers about their pension plans, and institutional investors, particularly pension funds. It also covers fiduciary management services, where the provider makes and implements decisions for the investor.

“It is extremely important that the investment consultancy sector works effectively for its clients, which include many of the UK’s biggest pension funds,” said John Wotton, chair of the investigation group. “And we want to ensure we are looking at the right issues. That is why we are urging people to get in touch if they have any evidence to share or views about whether these are the correct areas for us to be investigating.”

The CMA is required in its investigation to decide whether any feature, or combination of features, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the UK, according to the CMA. The CMA will then decide whether it should put in place remedies, or recommend that other bodies should do so, to “tackle the adverse effect on competition or any detrimental effect on customers so far,” said the CMA.

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Potential issues and possible remedies to put in place if competition problems are found have been grouped into the following areas:

Whether difficulties in customers’ ability to assess, compare, and switch investment consultants mean investment consultants have little incentive to compete for customers.

Whether conflicts of interest on the part of investment consultants reduce the quality and/or value for money of services provided to customers.

Whether barriers to entry and expansion mean there are fewer challengers to put pressure on the established investment consultants to be competitive.

The CMA is also calling on the public to offer views on whether the correct issues have been identified, and whether other issues should also be investigated, as well as views on potential remedies. It has appointed an investigation group, which will act as the decision-maker in the case.

Tags: Competition and Markets Authority, Financial Conduct Authority, Pension, UK

The World Bank and the International Monetary Fund (IMF) have sent a joint letter to the Ukrainian government expressing their concerns over a slew of amendments that were tacked on to the country’s pension reform bill.

“The revised draft law presented at the start of this week has been amended in a way that provokes significant concern at both the World Bank and the IMF,” the World Bank’s Satu Kahkonen said, according to Interfax Ukraine.

However, Kahkonen didn’t detail which amendments gave the the World Bank and IMF cause for concern, and why.

Last week, Ukraine Prime Minister Volodymyr Groysman said the proposed reform would prevent the deficit from jumping to more than 200 billion hryvnias ($7.57 billion) from the current level of 141 billion hryvnias.

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“This reform is comprehensive, systemic, and will lead to an increase in the size of pensions,” he told parliament, according to Reuters.

According to the World Bank, the Ukrainian government spends more on pensions than almost any other country in the world. In 2016, pension expenditures were 11% of the country’s GDP.

“These are exceptionally high shares. Yet, the pension for two-thirds of pensioners is so low that they require a subsistence top-up, even with 35 years of contributions to the formal pension system,” wrote Kahkonen in a commentary in Russian newspaper Novoye Vremya in April. “The point of retirement has become for many the start of a survival race, as the average old-age pension is only about $2 per day. Pension benefits are low, differentiation of pensions according to contributions is minimal, and mechanisms for adjustment to the cost of living are inadequate.”

Ukraine has approximately 12 million pension beneficiaries, and 14 million contributors, although some contribute only part of the year. World Bank projections indicate that the number of Ukrainians entering retirement will be considerably larger than the number of citizens entering the labor market. Estimates also show that over the next couple of decades, the ratio of contributors to pensioners may fall to two-thirds.

In its original form, the draft law sought to increase contributions to the pension fund by requiring citizens to work a set amount of years before retiring. It also aimed to reduce the number of professions where workers can retire early, while raising the minimum pension.

The reforms, prior to the amendments, would have created savings of at least 3% of the country’s GDP over the long term.

Tags: IMF, Pension, Pension Reform, Ukraine, World Bank

World Bank, IMF Concerned over Ukraine Pension Reform