EXCLUSIVE: Transaction costs make up 37% of pension investment costs - CACEIS

Transaction costs make up an average of 37 per cent of the total costs relating to pension scheme investments, data from CACEIS has revealed.

This makes transaction costs the second largest outlay in scheme investments, after management costs which make up 42 per cent of total investment costs.

The proportion of investment expenses made up by transaction costs has increased from CACEIS’ previously reported figure of 25 per cent.

CACEIS said this is in part due to new methodology of implicit costs which now capture ‘market impact’ costs, which could see transaction costs rise further in 2020 reporting given the ongoing volatility in financial markets that COVID-19 has induced.

Performance fees made up the third highest proportion of investment costs at 10 per cent, followed by ongoing charges, excluding AMC (6.5 per cent), and custody, fund admin and investment advisory costs (4.5 per cent).

The data, collected over the past three years from CACEIS' client base that is made up of both DB and DC schemes, also revealed that 83 per cent of the total cost of ownership of a pension scheme is investment costs, with the remaining 17 per cent coming from scheme management costs.

CACEIS found that the consistency of data is improving, which is said was largely due to the successful adoption of cost transparency initiative (CTI) templates.

The firm had seen a 50 per cent year-on-year increase in CTI take up, with 60 per cent of all data submissions from investment managers now coming through on the templates.

‘First time right’ data, where data does not need completing or correcting, from asset managers also improved in comparison to last year, up by 17 per cent, however 80 per cent still needed querying by CACEIS’ cost-transparency analysts.

CACEIS said that this showed the ongoing need for deeper analysis and vetting of the data it receives.

Timeliness had also improved year-on-year, with 20 per cent more submissions being received on time.

Commenting on the data, CACEIS managing director, UK, Pat Sharman, said: “CACEIS has a long heritage in cost transparency and governance reporting, first in the Dutch pension market and latterly here in the UK.

Since introducing our cost transparency and benchmarking solution to the UK market in 2017, we’ve seen huge progress in pension funds’ understanding of the role cost transparency can play in improving governance and oversight, as well as improvements in both the timeliness and consistency of data coming through from asset managers.

“However, we are not there yet. We believe good governance and value for money assessments can only be achieved by having a clear picture of all your pension scheme costs, something which is only going to become more important as we start to get a clear picture of the impact of Covid-19 on pension costs in the coming months.

“Furthermore, more progress is needed on the accuracy and completion of the data coming through from asset managers, which I am confident will continue to improve over the coming months.”

The data is based on CACEIS’ client base, which are predominantly DB pension schemes and have an average asset size £7.85bn. It was collected from 2016 – 2020.

Average transaction costs are likely to be lower for DC schemes.

CACEIS had a 98.95 per cent success ratio in collecting data and this latest data reveal marks the three-year anniversary if its Cost Transparency and Benchmarking service for UK pension schemes.

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