Nearly half of pensions industry experts expect the costs of defined contribution (DC) governance to rise in the coming years, according to RPMI, the pension service provider.
The finding comes from a survey conducted by RPMI, the results of which were launched yesterday at the company's first pensions conference which took place in central London.
The study, which was completed by over 400 industry professionals and carried out in partnership with the Pensions Management Institute (PMI), also showed that nearly half of the respondents expected a larger amount of their costs to be allocated to education; which would be in line with the implementation of auto-enrolment.
When asked by RPMI what they considered to be the biggest drawback of running a DC scheme, the fact that that members hold the risk, along with the uncertainty of a DC scheme's outcome, came out on top.
The 'most beneficial' aspect of a DC scheme was the fact that schemes knew their costs.
Chris Hitchen, chief executive of RPMI was surprised the respondents had rated the ability to make changes as one of the lesser favoured elements of a DC scheme, and said: "Given the current economic climate and turbulent markets that we have been seeing, we believe that the ability to make changes to DC schemes is a major advantage; allowing employers and employees to adapt their plans for the future.
"The results show that although respondents are thinking about uncertainty for members there is perhaps scope to develop the way the industry works with them to provide solutions that meet members' retirement needs."
Answering a question on enhanced transfer value offers (ETVs) as part of de-risking, more than half of the participants said they feared there could be a future risk of misselling.
Another topic that was included in the survey was pension increase exercises (PIE). The results show that 12% of the respondents were not aware of what a PIE is. Although this is a small number of responses on the whole, RPMI thought it was quite pertinent that people were unaware.
Under a PIE exercise non-pensioners are offered a higher (usually) tax-free lump sum and higher (but flatter) pension and pensioners are offered a one-off opportunity to exchange some of their increasing pension for a higher non-increasing pension.
Nigel Oakley, head of technical services at RPMI, said: "There will clearly be cases where restructuring a pension, so that there is a higher income now and lower increases in the future, may be in the best interest of a particular pensioner. On this basis, there would seem to be a place for well-run pension increase exchange (PIE) exercises within the pensions industry. However, we share some of the concerns that the Pensions Regulator has that some pensioners who accept a PIE offer may be disadvantaged by doing so.
The Regulator has expressed fears that pensioners might not always make a fully informed decision about a PIE offer, especially in those cases when cash or a large increase in current pension is offered.
"Pensions can be in payment for several decades and there can be a tendency for pensioners to overlook this fact and the impact of the pension increases sacrificed over such a period."
Oakley also said that as with ETVs there is the possibility for PIE offers to become a future mis-selling scandal, "although the risk would seem to be a bit lower than it is with enhanced transfer values. We believe that improvements in the level of overall financial education within the UK should play part of a long-term solution for this type of risk, although there may also be a need for new legislation or guidance," he said.
RPMI recently also announced it was acquiring EPAL, a Coventry-based pensions administrator which administers the Electricity Supply pensions scheme. This transaction is due to be completed on 15 December.
azeevalkink@wilmington.co.uk
