Almost a quarter of private sector defined benefit pension scheme trustees are failing to identity what they are paying for in investment charges despite this being the second largest expense for schemes, the Pensions Regulator revealed today.
In a study examining how DB schemes of different sizes are impacted by administration and other running costs, the regulator highlighted that, on average, investment expenses represented 22% of the proportion of costs to schemes. This ranged between 20% for small schemes, 27% for large schemes and 43% for large schemes.
TPR said 23% of trustees could not explain what all the costs and charges which they pay in relation to investments. This was more pronounced among small schemes where more than a third (38%) could not name all costs, compared to 4% in large, and 9% in very large schemes, being unable to do so.
The greatest proportion of costs goes to scheme administration, which is on average 37%, ranging from 41% for small schemes, 31% for large schemes and 35% for very large schemes.
Interim TPR chief executive Stephen Soper said: 'These findings will act as a mirror to DB schemes - for the first time employers and trustees can see the quantitative position they occupy in the context of similar schemes in the market.
'We are not trying to tell DB pension schemes what their charges should be. Our aim is to put the information out there in order to start a dialogue on cost and help trustees and employers assess whether they are receiving value for money.'
The regulator's study shows that, on average, small DB schemes pay £1,054, nearly four times as much per member in running costs, compared to large schemes (£281). It noted that this was nearly six times higher than that for a very large scheme (£182).
Soper said the study clearly demonstrated the huge variation in what employers pay for their scheme expenses.
'There will be many reasons for this, including quality, quantity and pricing,' he added.
'Many trustees are struggling to understand what they are paying for, particularly in the investment arena. There is a compelling mutual interest for employers to engage with trustees about their approach to scheme investment, and the regulator's forthcoming DB code will set a clear direction for just this type of collaboration.'