Trustees unaware of DB pension investment charges

Nearly a quarter (23%) 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, according to research by The Pensions Regulator (TPR).


Its Defined benefit scheme running costs research 2014, which was prepared for TPR by IFF Research, surveyed 327 DB pension schemes.

It found that the average cost per member of running a small scheme (12-99 members) stands at £1,054 per year, nearly four-times higher than the £280 for a large scheme (1,000-4,99 members) and nearly six-times higher than the £182 for a very large scheme (5,000 or more members).

The research found that the administration of DB pensions represents the greatest proportion of costs, at 37% on average, ranging from 41% for small schemes, 31% for large schemes and 35% for very large schemes.

It found that investment costs represent the second largest cost for schemes, at 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 that they pay in relation to investments, such as investment management charges.

This was more pronounced among small schemes, where 38% could not name all costs, compared with 4% in large, and 9% in very large schemes.

Stephen Soper (pictured), 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 [TPR’s] forthcoming DB code will set a clear direction for just this type of collaboration.”