Company schemes demand pensions fee transparency

Calculating feesEmployers offering defined contribution (DC) pension plans are demanding more fee transparency from bundled pension providers and are likely to increase their contributions.

The move is seen as part of a trend for a generation of modern DC pension plans to emerge that combine the best elements of the DC plans and defined benefit (DB) pension plans, says Vanguard Asset Management.

A Vanguard survey of multi-national companies with retirement plan sponsors in several countries, shows that employers that offer DC plans tend to have a more prominent role in seeking better investment outcomes for employees and demanding fee transparency, which is leading to the greater availability of low-cost investment options in the schemes.

Nearly 80% of respondents indicates that fee transparency is one of the most important considerations for choosing whether to use a “bundled service approach”— in which the plan administrator and investment manager are the same and the fees for both are bundled into one asset-based fee — or an unbundled approach, which separates the cost for each and therefore clarifies the extent to which higher asset-based fees may be subsidising plan administration costs.

With greater awareness of a plan’s overall costs, many sponsors are seeking lower-cost service and investment options, says Vanguard.

Steve Charlton, Vanguard’s defined contribution manager for Europe, says: “The modern DC plan reflects innovation that is driving an evolution in the traditional DC plan structure to provide many of the best elements of both a DB plan and a DC plan.

“The push for fee transparency will continue, leading to structural changes for DC plans, including more unbundling of services and greater use of passive mandates, especially in default options, which will lead to lower overall plan costs.”

The survey – Global Trends in DB and DC Plans – shows an expected increase in employer contributions (71%).

The research was conducted in the second half of 2014 among more than 90 multi-national client companies, with an aggregate $650 billion (€597 billion) in DB and DC plan assets.

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