The majority (91%) of pension schemes have some form of charge for their members, according to research by the National Association of Pension Funds (NAPF).
Its 39th Annual survey, which covered 950,000 defined contribution (DC) pension members, found that 79% of schemes have an annual management charge (AMC), while the employer paid the costs of external advisers in 77% of schemes.
The research also found that the average AMC for a DC pension was 0.46%.
The average employee contribution rate was 12.1%, with an average of 8% from the employer.
On average, respondent DC schemes offered 13 different investment funds to their members and nine out of ten offered a default fund. Where available, the majority (84%) of members are likely to remain in the default fund.
Most (96%) of the scheme default funds use a lifestyle strategy for members approaching retirement and, on average, investment funds review their default fund every three years.
At retirement
Three quarters (75%) of respondents told members about the open market option for annuities, up from 68% in 2012, while 60% encouraged members to obtain independent financial advice.
Only 6% reported they offered scheme members no support at all.
Defined benefit pensions
The research also looked at defined benefit (DB) pensions and found that the rate of closure eased in 2013, with 12% of private sector DB schemes remaining open to new members.
This represented very little change on a year-on-year basis (a drop of 8%) and significantly less than the drop of almost a third from 2011 (19%) to 2012 (13%).
The number of schemes closed to both new members and future accruals rose to 35% from 31% in 2012. The number of schemes closed to new members, but open to future accruals, dropped to 53% from 55% in 2012.
Four out of ten DB respondents reported that their appetite for liability matching assets had increased in the last 12 months. More than a third of DB schemes had invested in commercial real estate and a further 11% had considered it.
Of those that responded, almost a quarter (23%) of DB schemes had made some investment in infrastructure and a further 18% had considered investing.
Joanne Segars (pictured), chief executive of the NAPF, said: “Pension funds are already grappling with significant economic and longevity issues.
“While it’s good to see a slower rate of DB scheme closure this year, they still face significant challenges. Of the DB schemes open to new members or future accruals that responded to our survey, 88% are still contracted out, representing a membership of nearly two million people.
“They face uncertainty about how the state pension reform will affect them, for example, the significant additional costs from the loss of the national insurance rebate.
“That is why the NAPF has called on the government urgently to bring forward solutions to help schemes navigate these changes.
“In an economic climate of long-term, low-interest rates, funds are considering how to broaden their investments. The NAPF has argued strongly for some time that it should be easier for institutional investors to invest in infrastructure as an asset class, and our survey shows growing member interest in this form of investment.
“With 80% of DC members remaining in a default fund, the fund’s design and investment strategy are crucial, but charges also affect member outcomes.
“It is important that charges are both transparent and reasonable, and, while the average charge was 0.46%, the range in this year’s survey was wide.
“In November 2012, the NAPF published a join industry code of conduct, Pension charges made clear. Awareness of, and commitment to, the code is growing: 85% of our survey respondents had heard of the code and three-quarters planned to implement it.
“We still want to see more schemes offering at-retirement services that help scheme members select the best product, as our research shows that retirees each year could be £1 billion better off if they secured a good annuity deal.”
