Annual management charges for defined contribution (DC) pensions continue to decline, with employers placing increasing emphasis on retirement outcomes and decumulation, according to WTW’s 20th annual DC Pensions and Savings survey.

The study revealed that annual management charges for DC investments have decreased to an average of 28 basis points, compared with approximately 30 basis points in 2024 and 38 basis points in 2017, with nearly two-thirds of schemes operating at below 30 basis points.

However, the results have reignited debate about whether the industry’s focus on reducing costs has gone too far, potentially at the expense of investment value.

Indeed, four in 10 larger schemes said they would consider higher charges to gain access to illiquid investments, compared to just 12 per cent of smaller schemes.

The survey also found that the use of off-the-shelf default funds has increased sharply, rising from 47 per cent of DC schemes in 2017 to 79 per cent in 2025.

While providers have sought to integrate environmental, social and governance (ESG) and private markets exposure into these defaults, WTW noted that implementation varies widely and warned employers to reassess regularly whether their provider’s solution remains appropriate.

In last year’s survey, WTW had already cautioned that focusing too heavily on lowering costs could limit access to diversified and alternative assets, particularly where legacy high-cost funds persist.

WTW head of DC consulting, Helen Holman, stressed that there is an ongoing question over whether the industry’s drive to cut costs has reached its limit.

She suggested that alternative investment strategies such as private equity and infrastructure could provide growth and diversification opportunities despite higher fees.

Holman added that the debate over whether illiquid assets can enhance risk-adjusted returns is particularly relevant as the government continues to encourage greater investment in these areas through the Mansion House reforms.

The research also highlighted a shift in employer priorities, with seven in 10 now focusing on building engagement and improving retirement outcomes, while 63 per cent cited improving outcomes and 62 per cent enhancing financial wellbeing support as top goals.

In comparison, last year’s survey found many employers concerned about retirement adequacy but reluctant to allocate new funding to increase plan generosity.

Decumulation strategies are becoming increasingly important as schemes prepare for legislation, expected by 2027 for master trusts, that will require them to offer appropriate retirement income products.

This has sparked interest in ‘flex then fix’ approaches, where savers initially draw down funds before later purchasing an annuity, as well as in the potential of Collective Defined Contribution (CDC) schemes.

Indeed, the study found that 15 per cent of employers with own-trust DC schemes are considering a move to CDC within two years, echoing broader industry momentum around CDC expansion.

Meanwhile, providing guidance rather than full financial advice is also emerging as the preferred route for employers to support staff.

According to the survey, while 29 per cent currently offer or facilitate guidance services, nearly 69 per cent expect to do so within two years.

Holman noted that guidance services stop short of regulated advice but offer a more cost-effective way to support members, both as they approach retirement and across broader financial wellbeing needs.

She added that companies are increasingly willing to provide, and pay for, access to this type of support for their employees.

---