The Pensions Regulator (TPR) has today published their findings on how DB schemes of different sizes are affected by administration and other running costs.
The research has revealed:
- almost 25% of trustees of private sector DB schemes do not know how much they are paying in investment charges
- small DB schemes pay on average nearly four times as much as large schemes per member in running costs (£1054 p.a. for smaller schemes compared to £281 for large schemes)
- scheme administration represents the greatest proportion of running costs – around 37% on average
Alongside this research, TPR has developed a charges checklist and web tool which allows trustees and sponsoring employers to compare the cost of their scheme with other typical schemes of similar size. The web tool is extremely easy to use – simply select the size of your scheme and the results are displayed. The tool gives the lowest, highest and average cost per member from the schemes surveyed and provides a breakdown of the average DB running costs for schemes of each size. The tool also shows a graph comparing the running costs of schemes of different sizes.
The research should encourage employers to look more carefully into how much is being spent running DB schemes. The checklist and web tool will enable employers to gauge whether or not they are overspending on running costs.
Other questions this research might lead employers to ask include:
- Have running costs been reviewed recently?
- Are there any procedures in place to keep on top of costs?
- Has an explicit choice been made in relation to the desired level of investment management services and the corresponding fee levels?
The research has shown a huge variation in what employers are currently paying for their scheme expenses. Of course some trustees will prefer a higher level of active management, and smaller schemes will usually pay more per member than larger schemes, however, the web tool provides a simple way for employers to see how their costs compare with other DB schemes of similar size.