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TRANSACTION COSTS CAN MAKE UP 37% OF A PENSION’S INVESTMENT COSTS ACCORDING TO CACEIS*

• Data reveal marks three year anniversary of CACEIS’ Cost Transparency and Benchmarking service for UK Pension schemes
• 83% of the Total Cost of Ownership (TCO) of a pension scheme is investment costs with the remaining 17% coming from pension scheme management costs
• CACEIS’ data reveals improving cost data delivery and timeliness from asset managers, however there is still room for improvement, with only 20% of data coming in first time right.
• CACEIS’ has a 98.95% success rate in collecting data

01 Jun 2020

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CACEIS, the governance partner of choice for UK Pension Schemes is celebrating the three-year anniversary of the official launch of its UK cost transparency and governance service, by revealing average UK pension costs data collected over the past 36 months.

The data reveals that outside of management costs, transaction costs are the largest single cost to a pension scheme at 37%, up from a previously reported 25%. This increase in costs is in part due to the new methodology of implicit costs which now capture ‘market impact’ costs which could see transaction costs rise further in 2020 reporting, given the ongoing volatility in financial markets that COVID-19 has induced.

Investment cost breakdown

Investment Cost

%

Management Costs

42%

Transaction Costs

37%

Performance Fees

10%

Ongoing charges (excluding AMC)

6.5%

Custody, fund admin, investment advisory

4.5%

UK Data Submissions and Quality Improving

Consistency of data is improving, due largely to the successful adoption of CTI templates. CACEIS has seen a 50% increase in CTI take up, with 60% of all data submissions from investment managers now coming through on the CTI templates.

First time right data from asset managers (where data doesn’t need completing or correcting) is improving with a 17% increase year on year. However, a vast majority (80%) still need querying by CACEIS’ UK-based cost transparency analysts, illustrating the ongoing need for deeper analysis and vetting of the data being received. Timeliness has also improved, with 20% more submissions coming in on time compared with the same period in last year.

Cost Transparency and Value for Money go Hand in Hand

CACEIS believes without true oversight of ALL pension costs associated with running a pension scheme, trustees cannot assess whether all the services they employ represent the best value for money for its members. Greater cost transparency and total cost oversight puts data into the hands of the asset owners – the schemes, to make better informed decisions. This means they can have meaningful conversations with their asset managers and various service providers on the overall value that is being delivered.

CACEIS has a long heritage in cost transparency and governance reporting, first in the Dutch pension market and latterly here in the UK. Since introducing our cost transparency and benchmarking solution to the UK market in 2017, we’ve seen huge progress in pension funds’ understanding of the role cost transparency can play in improving governance and oversight, as well as improvements in both the timeliness and consistency of data coming through from asset managers. However, we are not there yet. We believe good governance and value for money assessments can only be achieved by having a clear picture of ALL your pension scheme costs, something which is only going to become more important as we start to get a clear picture of the impact of COVID-19 on pension costs in the coming months. Furthermore, more progress is needed on the accuracy and completion of the data coming through from asset managers, which I am confident will continue to improve over the coming months.

Pat Sharman, Managing Director, UK, CACEIS

* Note to editors, based on CACEIS’ client base. Data predominantly based on DB Pension Schemes, with an average asset size £7.85 billion. Date collected from 2016 – 2020.

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Scott Foster

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Scott Foster

Product Specialist, Cost Transparency & Benchmarking
+44 20 7153 3664