Defaqto has warned advisers that making comparisons among auto-enrolment fund charges isn't straight forward, as some providers have bespoke structures and others do not publicly state their fees.
The firm published today (25 April) a workplace pension default funds guide, in partnership with the National Employment Savings Trust (Nest), comparing strategies and performance to help advisers identify 'value for money'.
In its analysis of the default funds of 19 providers, Defaqto said 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".
Since 2015, providers have to cap the charges within default funds to 0.75 per cent per year of funds under management.
While this cap "provides some peace of mind, ascertaining exactly what is being charged for each element is not always easy," Defaqto stated.
The report stated some providers set a standard fee, while others charge a combination of fees, so making a like for like comparison is not always straight forward.
The report stated: "This is an issue because for advice to be accurate, advisers need to include all costs in their research."
For example, The People's Pension – the second largest master trust in the UK with almost 4 million members – offers a 0.5 per cent flat fee, with no extra costs.
Nest, which has more than 6 million members, charges an AMC of 0.3 per cent, plus a contribution charge of 1.80 per cent.
Defaqto also warned that advisers will find that some schemes do not publicly state their fees, requiring an application to be made to the provider who will then offer a 'bespoke' rate.
Comparing the effect of different charging structures to the members' pensions, Now: Pensions has the best result, with a saver ending with a pot of £339,464 over 40 years.
The provider charges an AMC of 0.3 per cent plus a £1.50 per month administration fee, which started in April this year.
Defaqto's analysis considers a £25,000 salary, a growth rate per year of 2.5 per cent, an annual investment growth rate of 5 per cent, and a total pension contribution of 8 per cent.
Government-backed provider Nest is the second cheapest option, despite the contribution charge of 1.8 per cent, which is a one-off cost.
Defaqto warned that the compounding effect of costs over the longer term can be significant.
The report stated: "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."
maria.espadinha@ft.com
