Pension charges survey 2020 – research context note
Published 13 January 2021
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Summary
This report measures the types and levels of charges across defined contribution (DC) trust-based and contract-based workplace pension schemes. The Pension Charges Survey was conducted previously in 2016 and 2015.
Research background
Since its introduction in 2012, automatic enrolment (AE) has generated a huge rise in the number of people saving into a workplace pension. The Department for Work and Pensions (DWP) are committed to ensuring that these schemes offer the best value for money for savers. Many of whom will be on low incomes, with little prior experience of long-term savings products, and they will not have made a conscious choice to ‘opt in’.
In April 2015, the DWP introduced 2 reforms:
- a charge cap on the default arrangements of qualifying DC workplace pension schemes. The annual cap is set at 0.75% of funds under management or an equivalent combination charge. It applies to all ongoing charges, and excludes transaction costs
- a ban on consultancy charges in all qualifying DC contract-based schemes
The Parliamentary Work and Pensions Committee recommended that the DWP review the level and scope of the charge cap, as well as permitted charging structures, in 2020.
In June 2020, the DWP published the Review of the Default Fund Charge Cap and Standardised Cost Disclosure Call for Evidence. This consultation committed to reviewing the charge cap and calling for evidence, which included the Pension Charges Survey, to inform future decisions.
The Pension Charges Survey 2020 is designed to capture the full range of charges applied to DC workplace pension schemes that are open to new members in the period after April 2016. Specifically, it seeks to:
- measure average overall charge levels and the distribution of overall charges across pension pots
- measure the prevalence and level of different charge components within the cap
- confirm that charge components now banned are no longer being levied
The results are segmented by different scheme types and characteristics, such as the number of members of the scheme, and whether the scheme is a master trust, a trust-based or contract-based scheme.
The study also collected information about a range of charges which, although outside the cap, are considered relevant, such as transaction costs.
Contribution to the evidence base
The Pension Charges Survey has been undertaken in 2016 and 2015. The Pension Charges Survey 2020 provides up to date evidence on the types and levels of charges across defined contribution (DC) trust-based and contract-based workplace pension schemes. It also includes topics not previously covered by past waves of the survey for example, decumulation and illiquid investment.
Research value
Findings from the survey have been used to understand more about costs and charges for members and providers in the DC pension industry. The DC pension market is evolving, and the Pension Charges Survey 2020 provides crucial up to date evidence to inform the response to the Review of the Default Fund Charge Cap and Standardised Cost Disclosure Call for Evidence. Findings from the survey have been used to inform the decisions about the level and scope of the charge cap.