The pensions industry needs to “think carefully” about how to “storytell” performance fees in private assets to scheme members, Standard Life head of investment proposition development, Callum Stewart, has said.

Speaking at the PLSA Investment Conference, Stewart stated: “We as an industry really must think carefully about how we are going to tell this story [of performance fees] to the member, because the overall message to them is a really good one, that your money has outperformed expectations net of this fee. We need to think carefully as to how we storytell this to the member.”

He also highlighted how the individual member may not have the resources to “connect the dots that when you pay more you get more”.

According to Stewart, “there is a big difference between investing on one underlying investment solution that has performance fees, where all of your experience is hinged on the performance of that one component, and investing in a diversified private asset portfolio as part of a wider holistic portfolio, where the performance fee experience then diminishes in the lumps and bumps of additional expenses in that level of magnitude”.

“We certainly have tested that and that’s the experience the average member will see,” he added.

In August 2023, The Pensions Regulator (TPR) shared updated guidance to help DC schemes comply with new regulations designed to ensure they consider all the investment opportunities available to achieve best value for savers.

This included the removal of a regulatory barrier that may have hindered trustees from exploring investment in certain funds, by allowing trustees to exclude specified performance-based fees from the list of charges falling within the regulatory charge cap limit of 0.75 per cent per annum.

TPR’s updated guidance reflects new requirements for schemes to disclose any performance-based fees incurred in relation to each of their default arrangements in their chair's statements, calculated as a percentage of the average value of the assets held in those defaults.

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