The Pensions Regulator has published the findings of research examining how defined benefit (DB) schemes of different sizes are impacted by administration and other running costs.
It shows that nearly a quarter of trustees of private sector defined benefit (DB) pension schemes could not identify what they were paying in investment charges, even though these represent the second largest expense for such schemes.
The study also reveals how small DB schemes pay on average nearly four times as much per member in running costs, compared to large schemes.
The regulator has developed a charges checklist and a web tool to help trustees assess how the costs of their scheme compare with those of a typical scheme of a similar size. The information it provides should offer a starting point for trustees who wish to assess the value they get from their pensions professionals and service providers.
View the research, DB scheme costs comparison tool and checklist.
Stephen Soper, interim chief executive at The Pensions Regulator, said:
“These findings will act as a mirror to DB schemes – for the first time employers and trustees can see the quantitative position they occupy in the context of similar schemes in the market. We are not trying to tell DB pension schemes what their charges should be. Our aim is to put the information out there in order to start a dialogue on costs and help trustees and employers assess whether they are receiving value for money. I'm keen to gather expert views and insight from the industry that will help us shape our regulatory approach in the future.
“This research clearly demonstrates the huge variation in what employers pay for their scheme expenses. There will be many reasons for this, including quality, quantity and pricing.
“Many trustees are struggling to understand what they are paying for, particularly in the investment arena. There is a compelling mutual interest for employers to engage with trustees about their approach to scheme investment, and the regulator's forthcoming DB code will set a clear direction for just this type of collaboration.”
Key findings of the research include:
- The average cost per member of running a small scheme stands at £1,054 per annum – nearly four times higher than that for a large scheme (£281), and nearly six times higher than that for a very large scheme (£182).
- Scheme administration represents the greatest proportion of costs – 37% on average, ranging from 41% for small schemes, 31% for large schemes and 35% for very large schemes.
- Investment costs represent the second largest cost for schemes – 22% on average, ranging between 20% for small schemes, 27% for large schemes and 43% for very large schemes.
- Despite this, 23% of schemes surveyed could not identify all the costs and charges which they pay in relation to investments (such as investment management charges).
- This trend was more pronounced among small schemes where over a third (38%) could not name all costs, compared with 4% in large, and 9% in very large schemes, being unable to do so.
The regulator is publishing the research to encourage trustees and employers to understand what they are paying and then ascertain whether or not they are receiving value for money from their providers and advisers. It is also aiming to start a discussion with the pensions industry to inform its future approach to value for money in DB pension schemes.
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