By Amanda Leek
Trustees and company managers are unaware of DC pension scheme costs with an alarming lack of transparency on fees associated with pension funds, a new LCP report has found.
The LCP DC Fees Survey, the first UK industry-wide fees survey for DC schemes, provided analysis of fees charged by investment managers, DC platform providers and insurance companies for DC arrangements.
The survey of over 300 funds revealed around 30 per cent of DC investment providers were unwilling to provide details of the indirect costs associated with their funds and LCP said undisclosed DC pension fees and costs continue to be substantial.
The total costs of diversified growth funds, often the default option for DC schemes, were as much as 50 per cent higher than the headline direct management charge. Fees charged by external holdings were not disclosed and, in some instances, with account trading costs taken into consideration, the combined additional costs increased to more than 100 per cent higher than the quoted annual management charge.
The lack of transparency adds further weight to industry calls for greater clarity and openness of fees and charges, and the theme was also highlighted in the Kay review.
LCP investment partner and author of the report Heather Brown said: “Our first report on DC investment fees shows that the overall costs for DC funds can be substantial, which is a particular concern at this time with the imminent introduction of auto-enrolment and the expected growth in the number and size of DC pension arrangements throughout the UK.”
She added: “More transparency on fees is needed to help employers, trustees and pension scheme as this could lead to lower costs, which should result in larger pensions for members. In particular, attention needs to be paid to the fees charged for the default investment option as this is where the majority of DC scheme members invest.”
The report highlighted several options available to mitigate rising costs for employers, employees and trustees. It recommends trustees and company managers should negotiate fees, particularly when a scheme’s membership profile changes, and research is important as fees vary widely, often with significant differences between providers within the same category. Fees for default options require particular scrutiny, it said.