Cost of managing pensions schemes continues to soar

The cost of managing pension schemes continues to soar according to findings released from the Annual Pension Scheme Administration Survey from Capita Hartshead.

Out of the 271 occupational schemes that responded to the survey, which will be published in full in June, 71% report that the cost of managing their pension scheme has grown at a faster rate than any other business overhead. The principal reasons given are increases in professional fees, cost of compliance and changes in long-term assumptions, such as mortality rate and investment growth.

The survey did, however, find that third party administration continues to deliver cost savings. For schemes with more than 2,000 members third party administration is generally cheaper, costing between £8 to £10 less per member per annum compared to in-house arrangements. The findings also show that increases in scheme administration costs were typically lower than in previous years.

Respondents said they chose to use third party administrators because of their experience, specialist technical support and reputation. These were factors that ranked above cost savings.

The survey also highlighted key trends among defined benefit (DB) schemes, including decisions by sponsoring companies to make special one-off employer contributions (38% of schemes), to increase regular employer contributions (16%) and to close schemes to new entrants (9%).†

However, almost four-fifths (78%) of respondents to the survey have now established defined contribution arrangements, with the median employer and employee contribution being 7% and 4% respectively.

The main activity for defined contribution schemes was the introduction of new investment fund options for members, reported by 15% of schemes. The survey also highlights that the introduction of flexible retirement is on the increase.†

Mike Addenbrooke, managing director of Capita Hartshead, said: “The survey shows a lot of the trends that were identified in the last year have continued, with further closures of defined benefit schemes, and a corresponding increase in the number of defined contribution schemes. One positive factor highlighted in this survey is that increases in administration cost, which had soared in last year’s survey, returned to a more comfortable levels, and, for all but the smallest schemes, third party administration continues to provide substantial cost savings.”