The average UK actively-managed pension fund is missing an opportunity to slice around £700,000 a year off its costs, The Asset Management Exchange (AMX) believes.
Through centralisation and standardisation of investment management, administration and trading functions a scheme could save the equivalent of around a sixth of a typical sponsor’s deficit contribution.
AMX calculates that annual investment management costs on a hypothetical £250m actively-managed pension fund, with five different investment managers, could total some £1.4m, while additional administration and transaction costs, replicated across five managers, could add another £700,000 in fees.
Sharing administration and transaction resources through a centralised structure, an actively-managed £250m pension scheme could cut fees by between 28% and 39%.
This would mean saving between £600,000 and £800,000 annually, or one sixth of a typical sponsor’s deficit contribution.
AMX global head Oliver Jaegemann said that many UK pension schemes are underestimating their costs by almost four times based on a survey by The Pensions Regulator that put a scheme’s costs at around £540,000 a year.
“Greater transparency in fees paid by institutional investors, though obviously a good thing, is only really useful if it inspires meaningful actions to reduce costs,” he added.
“Under the current industry model, each manager and asset owner transacts individually and basic administrative functions are needlessly replicated across a portfolio of asset managers, wasting significant sums.
“By centralising these functions and reducing or eliminating duplication, we believe that the UK pensions sector could save millions, even using cautious assumptions.”
