The report says that between £5.6bn and £8bn is potentially exposed to charges above 2 per cent, with £900m potentially exposed to charges above 3 per cent.
The audit, launched in the wake of the Office of Fair Trading’s September 2013 study of the DC workplace pensions market that found pre 2001 and other high charging contract and bundled-trust pension schemes were potentially not offering value for money.
The report found that of the £67.5bn assets under management within the scope of the audit, £42bn have charges of less than 1 per cent in all scenarios, including “worst case” scenarios.
Schemes where savers are potentially exposed to the very highest charges are more likely to have complex charge structures. Nearly all AUM potentially exposed to charges of over 3 per cent are in schemes with monthly fees or deductions from contributions.
The majority of the AUM exposed to charges over 3 per cent (£0.7bn out of £0.9bn) is held by savers with pots of less than £10k. Of this, over 90 per cent is held by savers that are paid-up and have stopped contributing. For such savers the impact of monthly fees can result in a very high impact of charges, the report found.
The IPB estimates that 407,000 savers that have joined schemes in the last 3 years could be exposed to a charge of over 1 per cent in the future. Of these, 178,000 could be exposed to charges over 2 per cent and 22,000 to charges over 3 per cent.
The report found around £3.4bn of AUM have potential exit charges of 10 per cent if savers leave their scheme today. Of this, £0.8bn is held by savers over age 55, who will be eligible to withdraw their pension savings from April 2015.
Independent Project Board chair Carol Sergeant says: “This audit is the first comprehensive and systematic analysis of the impact of charges in the DC workplace pension market, with a particular emphasis on historic workplace pension schemes. It has highlighted the importance of understanding the impact of scheme design on individual savers and has shown that there is no “one size fits all” charge structure that will ensure all savers get value for money all of the time.
“The comprehensive data set and the wide range of scenarios we have used in the analysis will help governance bodies to determine whether their scheme members are receiving value for money and will enable them to recommend changes to providers where they are not.
“The challenge now is for providers and governance bodies to work together under the watchful eyes of the regulators and bring about the necessary changes, so that savers who are not in automatic enrolment schemes can benefit from modern standards and value for money outcomes.”
