Transaction costs make up an average of 37 per cent of the total costs relating to pension scheme investments, data from CACEIS has revealed.

This makes transaction costs the second largest outlay in scheme investments, after management costs which make up 42 per cent of total investment costs.

The proportion of investment expenses made up by transaction costs has increased from CACEIS’ previously reported figure of 25 per cent. CACEIS said this is in part due to new methodology of implicit costs which now capture ‘market impact’ costs, which could see transaction costs rise further in 2020 reporting given the ongoing volatility in financial markets that COVID-19 has induced.

Performance fees made up the third highest proportion of investment costs at 10 per cent, followed by ongoing charges, excluding AMC (6.5 per cent), and custody, fund admin and investment advisory costs (4.5 per cent).

The data, collected over the past three years, also revealed that 83 per cent of the total cost of ownership of a pension scheme is investment costs, with the remaining 17 per cent coming from scheme management costs. UK total cost of ownership stands at 70bps on average – under the defined contribution charge cap of 75 bps.

CACEIS found that the consistency of data is improving, which is said was largely due to the successful adoption of cost transparency initiative (CTI) templates.

The firm had seen a 50 per cent year-on-year increase in CTI take up, with 60 per cent of all data submissions from investment managers now coming through on the templates.

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