Irish investment managers face a government investigation into the fees they charge to pension funds, the Irish Independent has reported

The Dublin government has reportedly been in touch with its usual consultants to tout interest in a probe for later this year and is set to put all types of charges under the microscope.

The move comes soon after miserable performance figures were released by Rubicon consultants of a 5.9% loss in pension funds' value in August, compounding public scepticism in Ireland towards a pension system that has suffered in recent years. Investment managers have attracted criticism in a country where sentiment against financial institutions is relatively high.

Senior figures at Irish pension fund and investment managing trade bodies have given the fee investigation a cautious welcome when speaking to Pension Funds Insider. There remains concern though with the heightened level of governmental interference in the private pension sector.

Jerry Moriarty, director of policy at the Irish Association of Pension Funds, said that he thinks "funds would at least be interested in the review as it may allow them to benchmark their fees".

"It will really depend on the terms of reference and what exactly is being looked at," he said. "For example, will the impact of regulatory costs be a factor?"

Frank O'Dwyer, chief executive of the Irish Association of Investment Managers, told Pension Funds Insider that an investigation could be a good chance for asset managers to reassure a skeptical government and public. He said that "I would prefer that this kind of unfounded commentary about excessive management fees is dispelled, so if an independent investigation can show that it would be welcome." 

O'Dwyer says he has been "disappointed that the commentary isn't more informed" as Irish pension funds' poor performance of late can be blamed on the kind of short-term stock market moves present across Europe. 

He explained: "People often don't understand that their pension schemes have independent pension financial advisers who help design the mandates as well as trustees looking after their scheme, so it's clearly false that investment managers are taking 4 or 5% out of each pension as some people maintain."

Levying charges
 
O'Dwyer says that "typically investment management fees aren't much more than the government levy." 

Moriarty also spoke out against the government's temporary 0.6% annual levy on all assets under management at pension funds, saying that it is harming pension funds ahead of the first of four proposed annual payments of the dues later in September. He explained that recent market turbulence has only made the charge more expensive as "for most schemes the levy has increased as a percentage of the scheme assets as it is calculated at 30th June but paid in September."
 
The Irish government hopes to raise €470m per year through the levy to spend on a jobs initiative.
 
O'Dwyer acknowledged that while "actively encouraging pension saving is difficult given the state of the public exchequer at the moment, we are looking for a clear path in government policy towards better retirement provision." 
 
The study will not be the first time this year that a European government has analysed management fees. A Swiss government study released in June found asset management fees to be higher than accounted for but lower than cynics had suggested, reassuring the national pensions industry.
 
First published 07.09.2011

dbillingham@wilmington.co.uk