WTW’s latest research has shown that only a quarter (26%) of UK defined contribution (DC) schemes are willing to trade-off higher charges for increased access to illiquid assets and private markets.

Similarly, just a quarter (25%) of schemes are interested in enhancing their investment in ESG strategies if it means higher fees. The remainder were reluctant to do so or, simply, did not know if it was the right thing to do, the consultancy found.

According to the firm’s latest Defined Contribution Pensions and Savings report, in the past decade, average charges for DC pension schemes in the UK have fallen by 20%, from 41 basis points (bps) in 2014, to 33 bps today.

This has been driven by the growth in DC assets, more frequent provider reviews and increased master trust provision in the DC market, encouraging fee negotiations based on larger scale, the consultancy claimed.

However, having achieved these savings over the past 10 years, pension schemes are now reluctant to reverse the gains and accept higher fees in return for greater emphasis on ESG investments or access to diversified asset classes.

Recent UK government pension proposals, known collectively as the ‘Mansion House Reforms’ are encouraging DC schemes to invest in more expensive but potentially higher growth assets, such as unlisted equities, private markets and illiquid assets.

“While it’s great news that DC schemes have successfully negotiated down fees over the past decade, in reality we know from our research that these modest gains do not alone provide a significant boost to average pot sizes for members,” said Gemma Burrows, director in WTW’s retirement business and author of the report.

“The opportunity to invest in more diverse asset classes, that were previously unavailable to DC savers, is something that should not be automatically dismissed on the basis of fees if, ultimately, they could provide better member outcomes. Scale and innovation are needed quickly in this area and careful selection of investment strategies, asset managers and funds will be a key part of the decision,” she added.

The report also disclosed that master trusts now represent the lowest average fees, compared to contract-based plans, which showed the highest average. Master trusts also continue to lead the way on incorporating ESG considerations within a default investment strategy.

While the government seeks to consult on the use of illiquid assets in investment strategies, WTW’s survey showed mixed views on the idea if it means an increase in fees in order to do so.

According to the report, 26% are in favour, 38% are against and 36% “don’t know”. This may reflect uncertainty around the value offered and a challenge for the market should this go ahead.

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