DB scheme running costs surge 37% on average in the past year

• Nearly one in three (32%) have seen their costs rise by over 50% with nine in ten DB scheme trustees (90%) saying running costs have increased by more than 10% in the last 12 months;
• Trustees say actuarial, technology / data, and covenant services costs are increasing most
• Alongside rising running costs, the most common challenges facing trustees are accessing different asset classes, pensions dashboard readiness, and covenant negotiations
• Almost all trustees (99%) found the pace of new regulations challenging in the past year, with new ESG rules being the most complex to implement

Over a third (32%) of trustees of DB schemes have seen their costs rise by over 50% in the past year, according to new research from TPT Retirement Solutions, one of the UK’s leading providers of workplace pensions schemes.

In a recent survey, all 100 trustees of defined benefit (DB) pension schemes polled said they had seen an increase in running costs, unanimously seeing increases of at least 5% in the past year, with 90% finding costs had risen by over 10%. On average, trustees said they had experienced a 37% increase in running costs.

When broken down, trustees highlighted actuarial services (19%), technology and data services (19%), and covenant services (13%) as the expenses that had increased the most. Legal and administrative services (both 8%) were least often noted as the costs with the highest increase.

Beyond increasing costs, almost all trustees polled (99%) said they had found the pace of new regulations a major challenge in the past year. In particular, nearly four in ten trustees (38%) said that new ESG-related regulations rules, such as TCFD reporting, were the most challenging to deal with. The new DB Fund Code and General Funding Code were seen as the most challenging by 22% of trustees, while the same number (22%) instead consider the Pension Schemes Act 2021 as the most difficult piece of regulation to navigate.

Alongside these challenges, 29% of trustees polled viewed accessing different asset classes as a significant challenge they are facing. Almost a quarter of respondents raised pensions dashboards readiness (24%), covenant negotiations (23%), and scheme administration (23%), as major issues they currently face as a trustee.

To help overcome the challenges trustees are currently facing, TPT’s DB Connect offers a solution that enables schemes to enjoy many of the benefits of consolidation without having to change their trustee board. The offering enables schemes to retain their legal structure and trustee board, while giving them access to an integrated service proposition that can simplify processes and ease costs of administration, actuarial, and legal services with fiduciary management being provided by TPT Investment Management (TPTIM), TPT’s FCA-authorised subsidiary.

Built on the scheme consolidation model, TPT pool assets to deliver greater value with integrated responsible investing for the benefit of corporate pension schemes. Through the use of a collective fund structure which aggregate the assets of the Master Trust with those of external pension schemes, generating immediate scale benefits across a wide range of asset classes. This enables schemes to benefit from reduced fees through economies of scale, improved governance, and investment expertise.

Nicholas Clapp, Commercial Director at TPT Retirement Solutions, comments: “Our research has found trustees are finding the current regulatory and price environment very challenging. As the regulatory environment becomes more complex, costs will likely continue to increase as trustees increasingly rely on advisers to support them. An average increase of 37% in running costs is unsustainable and makes it important for trustees to assess the value for money that they are receiving. It is the perfect time for trustees to review the current operating model and to explore options to mitigate these increasing expenses. Managing running costs is particularly important if a scheme is considering run on as part of its endgame solution.”

“Consolidation may prove to be a highly sought-after solution to the issues trustees are facing. We have designed DB Connect to help offer a valuable solution for trustees that can manage complex regulations and uses scale to reduce the costs of running a scheme. This can allow trustees to focus their time on looking after the strategic direction of the scheme, instead of worrying about running costs and regulatory changes.”