Nearly £26bn in defined contribution pension assets under management are at risk of being poor value for money, a report has found.
The 102-page Independent Project Board report, Defined Contribution Workplace Pensions: The Audit of Charges and Benefits in Legacy Schemes, found that £25.8bn in assets under management were potentially exposed to a reduction in yield of more than 1 per cent.
The report also found that some 407,000 savers who had joined defined contribution schemes in the last three years were at risk of an RIY higher than 1 per cent.
Of these, 178,000 savers could be exposed to an RIY of more than 2 per cent, and 22,000 could face a possible RIY of more than 3 per cent.
In its report the IPB warned that several elements could affect charges and no single approach could make sure savers got value for money.
It said: “Value for money is not solely determined by charges. Other elements of scheme quality outside the scope of this audit (such as administration and communication quality, investment performance and governance) are important determinants of value for money.
“Value for money is also highly dependent on the characteristics and behaviour of individual savers.”
The report added: “There is no single charging structure that will result in better outcomes for all savers irrespective of their future behaviour.”
| Key drivers of total charges |
| Years in scheme until today |
| Age today and number of future years contributing |
| Exit age |
| Contribution level |
| Fund value at the start |
Source: IPB report
Darren Philp, director of policy and market engagement for The People’s Pension, said: “There is now an unanswerable case for a full standardisation of charges.
“Charges need to be plainly obvious for savers, employers and the government.”
Tom Barton, a pensions partner for law firm Pinsent Masons, said: “There are, as expected, areas of concern. But helpfully the IPB acknowledges that there is no one size fits all solution.”
Tom McPhail, head of pensions research for Hargreaves Lansdown, said: “Long-standing loyal investors should not be penalised by getting a worse deal than new customers.”
The IPB, which consists of regulators, consumer advocates and industry representatives, was established to carry out the audit following an Office of Fair Trading market study into DC workplace pensions.
The OFT report, published in September 2013, identified approximately £30bn of savers’ money in contract and bundled trust schemes with charges at risk of being poor value for money.
It also found that competition alone could not be relied on to drive value for money for all savers in the DC workplace pensions market.
