Trust-based defined contribution (DC) schemes with between one and five members face the highest ongoing charges for investing their retirement pot, research has revealed.
The Department for Work and Pensions' (DWP) annual pension charges survey found members of these schemes had average ongoing charges of 72 basis points (bps), just under the charge cap, while the larger schemes with over 1,000 members had charges of 37 bps.
The figures confirmed that most default funds were under the 75 bps charge cap, with on average 99% of auto-enrolment (AE) qualifying trust-based schemes paying under the cap, with an average cost of 38 bps.
For qualifying contract-based schemes, 98% paid within the cap, with an average fee of 54 bps. Qualifying master trusts remained fully compliant with the cap, with an average charge of 48 bps.
The findings are based on a survey with 14 pension providers, and telephone and face-to-face interviews with 112 AE qualifying schemes and 125 non-qualifying unbundled schemes, where trustees work with a range of service providers rather than a single pension provider. Overall, the research covers around 15.1 million pension pots.
For qualifying unbundled schemes, just 80% were able to report on their ongoing charges figure, with 96% under the charge cap and an average charge of 42 bps.
The DWP said it was not possible to compare the figures with those released last year as a different cohort of providers had taken part. One of the top ten providers that participated last year was unable to this year, while another which was unable to last year did so this year, potentially skewing any like-for-like analysis.
The figures came as the DWP announced from April next year DC trustees could be required to disclose investment costs and charges to members online or face a fine up to £50,000.
Royal London director of policy and former pensions minister Sir Steve Webb commented the figures show that savers are receiving value for money.
"Members of workplace pensions are paying less than a penny in the pound to save in a workplace pension," he said.
"For every pound that they save, their employer will often contribute an additional pound, and their pension contributions also attract tax relief. For an investment of 80p after tax relief, a worker can get two pounds in a pension, and less than two pence of this will pay for the cost of running the scheme.
"This is incredible value for money and explodes the myth that anyone in a pension is at risk of ‘rip-off' pension charges."
Hargreaves Lansdown head of policy Tom McPhail added various reforms had improved members' value for money, and said disclosure would boost engagement.
‘Workplace pension schemes on the whole are doing a good job and are competitively priced," he said. "The introduction of the charge cap along with other reforms has ensured any members who were not paying a fair price for their pension now are.
"As attention shifts to getting members more interested and engaged with their retirement saving, policy efforts must focus on wringing out every last drop of value from workplace pension plans rather than rushing to ever lower charges. Ensuring pension providers are driving higher understanding and engagement is the obvious starting point."
Outside the qualifying scheme universe, contract-based schemes were paying on average 86 bps, with the smallest schemes of five or fewer members paying 94 bps. Trust-based schemes and master trusts paid on average 70 bps and 65 bps respectively.
McPhail added: "There is a widening gap between modern day workplace pension schemes and legacy, old fashioned pensions which are typically far higher in cost and less well-managed."
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