The Pensions Regulator has today published detailed findings for the first time on the level of costs that trustees of defined benefit (DB) pension schemes are paying for the running of these schemes. The analysis considers running costs by the size of scheme.
The findings show significant disparity on the average cost by size of scheme, with small schemes paying nearly four times the costs of large schemes. Significant costs include administration, investment and actuarial fees. A worrying key finding is that nearly a quarter of trustees couldn't identify the level of investment costs that they were paying.
Jeremy May, pensions partner at PwC, said:
“The pensions industry should be striving for efficiency where possible, which will ultimately lead to lower professional fees and better member outcomes.
“Closer collaboration between companies and trustee, which includes using a common funding and valuations platform, saves duplication and cuts the time taken to carry out many of the processes and therefore lower costs. Several ten of million pounds’ savings have already proved possible by companies and schemes using a common platform.”
Investment strategy
Nick Secrett, pensions investment director at PwC, said:
“Companies and trustees should be working together to make sure their scheme’s investment strategy is delivering. Too many schemes are running over-complicated and expensive investment strategies which are not providing value for money. They should spend more time monitoring the performance of their asset allocation, as this adds most value, and challenging harder on fiduciary costs. Companies and trustees need to pay closer attention to the churn of both managers and assets to check they are meaningful, rather than just adding transaction and advisory costs.
“There is still a great deal of uncertainty about whether active management actually adds value net of fees. Trustees should investigate new products which allow investors to replicate large chunks of active strategies via a passive rule-based system."
Administration fees
Peter Sparshott, director in PwC’s pensions management team, said:
"In our experience, there is a massive variation in administration fees for schemes of similar size and complexity, which often cannot be rationally justified. The fact prices are not easily comparable makes it harder for trustees to establish the value they are getting from their administration provider. It is vital trustees monitor their administration fees and regularly test the market to ensure value for money.”
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