The diverse charge structure among workplace pension schemes is “not straightforward” and can cause accuracy issues for advisers, Defaqto has reported.

According to a new guide on analysing workplace pension default funds, published today 25 April, by Defaqto and Nest, ascertaining exactly what is being charged by each pension scheme is “not always easy” making like-for-like comparisons problematic for advisers.

The guide stated that “one area where workplace pension schemes are leading by example is the use of the maximum equivalent default fund annual management charge (AMC) which is set at 0.75 per cent per annum”.

Nonetheless, Defaqto and Nest highlighted the fact that different providers hold different fee structures, which can lead to difficulty in distinguishing what is being charged for each element. Some providers set a standard fee, while others charge a combination of fees.

This lack of clarity can impact the accuracy of information given by advisers as all costs must be included in their research, to provide advice that results that point to the best value for money.

In addition, the “compounding effect” of costs over time is also something advisers need to consider, the guide noted. “Advisers should consider the suitability of any fee structure recommended and document how they are evidencing ‘value for money’ for both the employer and the employees.”

Schemes are also encouraged to consider how the fee structure fits with the regulators’ desire for ‘clarity of cost’ and whether it is comparable to other schemes.

Moreover, the guide put emphasis on the need for advisers to have access to at least five years of a schemes’ performance data to be able to make an accurate judgement.

Anything less than three years’ performance is “insufficient to draw any meaningful conclusion; ideally, one should be looking at five or more years,” Defaqto said.

“Default funds are now producing over five years of performance data. This gives advisers the facts to make evidence based recommendations.”

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