Charges across most types of large pension schemes fell between 2022 and 2023, with bundled own-trust, unbundled own-trust and master trusts charges all falling, according to research from Barnett Waddingham.
A report from the consultancy found that, despite government and regulators urging an increased focus on value not charges, bundled own-trust charges fell from 34bps in 2022 to 26bps in 20203, for schemes with average AUMs of around £1.2bn-£1.34bn, while unbundled own-trust TERs fell from 27 to 24bps. Master trust average TERs fell from 31 to28 bps.
But contract-based charges rose from 26bps to 27 bps over the period. Across the board there was a downward trend in charges as average fund value increases.
The analysis of 65 schemes with assets in excess of £500m.
The research found a correlation between average member fund size and default pricing. The research highlighted an increasing use of passive investments, with a quasi-active or short-term tactical overlay in the default strategy. Member chargers have generally reduced, in particular for own-trust arrangements.
The research found master trusts are being used not just as a consolidation vehicle for small DC arrangements but also to provide pensions for some significant workforces.
The report found many trustee boards held back on significant changes to the default investment strategy in 2022 because of the Russia/Ukraine conflict and then the Truss/Kwarteng fiscal event and subsequent rise in interest rates.
The research also found some trustees and employers are maintaining their own-trust DC sections so they can use their DB surplus to fund DC contributions and costs.
All of the schemes in the survey integrating ESG are doing so via exclusions, although a large number of unbundled arrangements are not doing so.
BW’s research shows UK equities make up on average 9 per cent of overall equity allocation, down from 15 per cent in 2021. Exposure to illiquids remains a rarity.
The research shows that large schemes are doing more to offer decumulation solutions to retiring members. Of the 65 schemes, 14 are offering a bolt-on master trust decumulation offering, 19 are offering an independent service and 30 have a to-and-through offering in place.
Barnett Waddingham partner Mark Futcher says: “Large schemes are influencers, in part because they are not restricted by commercial pressures in the market, meaning they can make decisions based on what they actually want.
