Schemes don't get value for money from paying actuaries more
Pension schemes paying higher actuarial fees are not getting better value for money from their providers, according to KGC's sixth actuarial fee and services survey.
It reveals a huge difference between schemes paying the highest and lowest fees, and that paying more does not necessarily mean they are receiving more services than a scheme paying lower fees.
It is the first time the firm has extended its actuarial survey to include value for money in order to see what services schemes are getting for the fees they pay. While trustees may expect consistency and for fees and service to be positively correlated, the results showed this is not necessarily the case.
A scheme could be paying an actuary twice as much to receive all core tasks, compared to a scheme paying half the amount and yet getting almost all of the actuarial services. For example, a life scheme with 20,000 members can get 100% of tasks if it pays the highest fee of £130,000, but pays £75,400 more than a scheme of the same size that can get 95.5% of tasks for the lowest fee of just £54,000.
This trend appeared for smaller schemes too. A life scheme with 5,000 members paying the highest fee of £96,333 gets 86.3% of tasks, which does not seem to be value for money when it could pay the lowest fee of £30,617 and get 77.2% of tasks.
Two schemes with the same needs and basic characteristics could be paying a markedly different fee while one receives a more comprehensive service, according to the report.
It also found that schemes paying the highest fees still receive around 10% less of what it expects as basic core tasks. Smaller schemes do not fare well either, with schemes paying the lowest fees receiving significantly less for their money. For schemes with 15,000 and 20,000 members there was less discrepancy in service provision but the range in fees was still large.
"Trustees should be cognisant of how much they are paying, what it is they are getting for it and what it is that they really want from their advisers and the service being delivered," said KGC research analyst and the report's author Hayley Mudge.
The firm said trustees and smaller schemes should ask themselves which core tasks are more important to them and how their firm charges for non-core services.
KGC surveyed 19 actuarial firms in Q4 2015 on their fees for a set of core services including annual actuarial, triennial actuarial tasks, ad hoc actuarial, periodic actuarial, triennial valuation, and corporate. The fees do not take into account where schemes may have negotiated with providers.
More on Defined Benefit
Trustees have 'false confidence' in their scheme strategies
Nearly every trustee is confident of the next stage in their scheme’s strategy, despite almost an equal number being forced to consider replacing plans within the prior 12 months, according to research by Barnett Waddingham.
Companies overstate liabilities by £60bn amid Covid deaths
Companies could be overstating their pension liabilities by up to £60bn due to their life expectancy assumptions, according to XPS Pensions Group.
Updated: Landmark GMP ruling 'significant challenge' for schemes
Defined benefit (DB) schemes that provide GMPs must revisit and, where necessary, top-up historic cash equivalent transfer values (CETVs) that have been calculated on an unequal basis, a landmark court judgment said last week.
FCA must stop DB transfer history repeating
Regulators must act now to impose some "proper regulation" to stop another defined benefit (DB) transfer advice disaster, saysTim Sargisson.
DB funds as an economic lever could derail schemes from responsibilities
Opportunities for defined benefit (DB) schemes to pursue investment approaches that help repair the UK’s economy cannot stand in the way of improving member outcomes, Aegon says.
