Total DC fund fees will double to £2.5bn by 2020

The £1.2bn raised in third-party and in-house fund fees will reach £2.5bn by 2020 on current trends,  according to estimates collated by SpenceJohnson, the market intelligence provider.

Of this £1.2bn pot, which relates specifically to fund fees, not administration, £631m is currently paid out of contract-based group personal pensions (GPPs) and stakeholder schemes of fewer than 100 members.

Just under a third of the current investment fees (£336m) is paid to fund platforms by trust-based schemes of a similar size.

Meanwhile, by 2020 a much larger proportion will be allotted to the biggest trust-based platform DC schemes, those with more than 5,000 members, which will multiply from a current £20m to an estimated £298m by the end of the decade.

Identically structured schemes with membership between 1,000 and 5,000 will generate fees of £214m by 2020, up from a current £14m.

The private report segments the DC market into 16 sections, by number of members and scheme set-up – from the trust-based, direct-to-manager schemes numbering more than 5,000 members, to the smallest contract-based plans.

It concludes platform providers, rather than independent financial advisers (IFAs), are important gatekeepers among these smaller schemes.

“In the smaller-company space, and in bundled schemes, IFAs help clients select from the available range of funds, but do not act as gatekeepers, in the sense they are not the ones who decide what funds should be on the platform in the first place – this is the role of fund selection teams within the bundled provider,” it says.

The study finds platform providers to be the prominent gatekeepers in seven of the 16 segments – primarily among smaller and contract-based schemes – and sharing the top spot with the big four consultants on a further two.

With larger schemes, deciding which funds are routinely used is the “closely guarded reserve” of the larger consultants, says SpenceJohnson, who will commonly instruct a platform to add funds to its range to suit a particular client.