11 March 2010 – Publication of DWP research report no. 630: Charging levels and structures in money-purchase pension schemes: Report of a quantitative study
Today, the Department for Work and Pensions publishes the findings of research exploring the charging levels and structures in money-purchase pension schemes including both trust-based occupational schemes and contract-based workplace personal pensions.
The research was undertaken to understand the current charging levels and structures in both trust-based occupational pension schemes and contract- based workplace personal pensions in advance of the pension reforms planned for 2012. Quantitative methods including telephone interviews and self completion questionnaires were used to gather the information.
The main findings from this report can be divided into four key headings:
Schemes with overall charges
Seventy-three per cent of trust-based schemes have a single, overall charge rather than a charge broken down into separate elements. Of these schemes, half charge as a percentage of the fund, however, a significant minority of occupational schemes use other approaches to calculate the overall charge. The most common of these are contribution charges – 19 per cent (rather than as a percentage of fund), flat fees (five per cent) fixed fees (four per cent) and time-cost fees (four per cent).
Overall charges are usually levied annually or monthly for 78 per cent of schemes. Annual charges are most common, except for the largest schemes when monthly charges are preferred.
The median charge level as a percentage of fund in trust-based schemes is one per cent with larger schemes more likely to charge less. The largest proportion of contract-based schemes (36 per cent) (excluding group self-invested personal pensions) charge a standard basic AMC, excluding intermediary commission, in the range of 0.4-0.59 per cent. With commission, the largest proportion of schemes (45 per cent) can be found in the one per cent plus bracket.
Schemes without overall charges
Twenty-one per cent of trust-based schemes have their charges broken down into specific elements with specified charges for fund management, administration charges, account set-up, intermediary commission, etc. When charges are broken down, there are usually (75 per cent of cases) specified charges for core fund management/investment and for core administration (74 per cent of cases), the former usually levied as a percentage of the fund (typically no more than one per cent) and the latter as a flat fee. However, the size of this fee is very dependent on the scheme size.
Additional charges
There are a variety of other additional charges that can arise in trust-based schemes, the most common of which (seen in 25 per cent of schemes) are for members transferring funds to other schemes.
All of the Group Personal Pension (GPP)/Stakeholder Pension (SHP) scheme providers participating in this study levied additional charges for specific fund choiceson at least some of the schemes they provide and nearly all providers also provide an active member discount for at least some of their contract-based schemes – i.e. reduced AMC levels for members who are actively contributing to a scheme.
Who pays the charges in trust-based schemes?
In around three out of four trust-based schemes with an overall charge, the employer pays for some or all of the charges (77 per cent). Schemes where only the employee contributes are in a minority but are not that uncommon (19 per cent).
In schemes with separate specified charges, the employer is most likely to pay some (46 per cent) or all of the charges (36 per cent). In only 14 per cent of cases does the employee alone shoulder these charges.
Notes to Editors:
- DWP Research Report No. 630 – “Charging levels and structures in money-purchase pensions schemes: Report of a quantitative study” is published on 11 March 2010 by Corporate Document Services. The research was conducted on behalf of DWP by Andrew Croll, Alex Lewis and Ed Vargeson at Ipsos MORI.
- Free summaries are available from Paul Noakes at the DWP Social Research Branch (3rd Floor, Caxton House, Tothill Street, London SW1H 9NA). The reports and summaries are available free on the DWP website http://www.dwp.gov.uk/asd/asd5
- The research involved 800 telephone interviews with administrators of occupational pension schemes and self completion questionnaires filled in by eight providers of contract-based workplace personal pensions.
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