UK roundup: LCP on DC fees, Legal & General, LDI
UK - LCP has lamented the fact an increasing number of defined contribution (DC) schemes are seemingly “unaware” of the fees charged to members for their funds.
A survey conducted by the consultancy found that around a third of DC investment providers were “unwilling” to publish details of the funds’ indirect costs.
LCP warned that, where default funds were based on diversified growth funds, total costs could be as much as 50% above the scheme’s annual management charge.
It added that, once trading costs were taken into account, members paid the AMC more than twice over.
Heather Brown, report author and investment partner at the consultancy, said the “substantial” costs would be a particular concern ahead of the launch of auto-enrolment in the UK.
“More transparency on fees is needed to help employers, trustees and pension schemes, as this could lead to lower costs, which should result in larger pensions for members,” she said.
“In particular, attention needs to be paid to the fees charged for the default investment option, as this is where the majority of DC scheme members invest.”
In other news, strong interest in de-risking strategies has helped boost asset inflows at Legal & General Investment Management (LGIM), according to its half-yearly report, with the company revealing that more than a fifth of new business stemmed from liability-driven investment (LDI) mandates.
Publishing its report of business activity in the six months to June, LGIM said assets under management had risen by £10bn (€12.6bn) to £381bn, with 22% of the period’s £3.3bn in gross inflows a result of its LDI mandates.
In its report, the company said regulatory changes were driving the “rapid” development of the UK pensions market.
“For UK DB schemes,” it added, “we expect the focus to remain on de-risking solutions, which is likely to result in declining equity allocations.
“At the same time, we expect to gain more fixed income and LDI mandates, as existing clients de-risk and new clients are attracted to these capabilities.”
The company said £60bn of its assets was currently held in such de-risking strategies.