Transaction costs make up to 37 per cent of a pension scheme’s costs, with the overall total cost of ownership (TCO) for UK schemes standing at on average 70bps, according to governance services provider CACEIS.
Analysis of three years’ worth of data by CASEIS show 83 per cent of the TCO of a pension scheme is investment costs with the remaining 17 per cent coming from pension scheme management costs.
CACEIS says cost data delivery and timeliness from asset managers is improving, but adds however there is still room for improvement, with only 20 per cent of data coming in first time right.
The research reveals that outside of management costs, transaction costs are the largest single cost to a pension scheme at 37 per cent, up from a previously reported 25 per cent. This increase in costs is in part due to the new methodology of implicit costs which now capture ‘market impact’ costs which could see transaction costs rise further in 2020 reporting, given the ongoing volatility in financial markets that Covid-19 has induced.
Investment cost breakdown
| Investment Cost | % |
| Management Costs | 42% |
| Transaction Costs | 37% |
| Performance Fees | 10% |
| Ongoing charges (excluding AMC) | 6.5% |
| Custody, fund admin, investment advisory | 4.5% |
Consistency of data is improving, due largely to the successful adoption of cost transparency initiative (CTI) templates, says the firm. CACEIS has seen a 50 per cent increase in CTI take up, with 60 per cent of all data submissions from investment managers now coming through on the CTI templates.
First time right data from asset managers – where data doesn’t need completing or correcting – is improving with a 17 per cent increase year on year. But 80 per cent still need querying says CACEIS, which it says illustrates the ongoing need for deeper analysis and vetting of the data being received. Timeliness has also improved, with 20 per cent more submissions coming in on time compared with the same period in last year.
CACEIS managing director UK Pat Sharman says: “Since introducing our cost transparency and benchmarking solution to the UK market in 2017, we’ve seen huge progress in pension funds’ understanding of the role cost transparency can play in improving governance and oversight, as well as improvements in both the timeliness and consistency of data coming through from asset managers.
“However, we are not there yet. We believe good governance and value for money assessments can only be achieved by having a clear picture of all your pension scheme costs, something which is only going to become more important as we start to get a clear picture of the impact of Covid-19 on pension costs in the coming months. Furthermore, more progress is needed on the accuracy and completion of the data coming through from asset managers, which I am confident will continue to improve over the coming months.”
