Does your scheme offer value for money?

And often things that are most comparable, such as administrative ease, do not determine whether or not members will get good outcomes, which is the whole point of saving into a pension.

What members get back at the end comes down to: how much they contribute, what returns they get, and what they pay. Schemes have very little control over how much members contribute, but they can influence costs and returns. So if you want bang for your buck, check your scheme for three key things.

Scale creates space for innovation

It is a simple fact that scale allows for efficiencies. Bigger pension schemes are more likely to be able to secure better deals with their suppliers, which means lower costs for members.

Larger pension schemes can also innovate and be bolder in what they try to achieve.

Defined contribution schemes have traditionally been considered too constrained to invest in alternative asset classes like property or infrastructure, for example. Those assets offer the chance of extra returns because they are not easy to buy and sell on demand, which means they have mainly been avoided by defined contribution schemes in the past.

But look around the world at some of the largest investment funds and you see that with scale, those constraints fall away.

Large schemes with long-term positive cash flow expectations should be able to make the most of the additional returns that more illiquid assets, such as property, can offer.

Design determines cost

The design of a pension scheme can make a big difference to the quality you get for the price. Bespoke funds designed specifically for an individual employer are going to be the most expensive.

At the other end, traditional lifestyled funds provide very little, if any, tailoring.

A target date model, which groups lots of members into funds depending on their age, offers flexibility as well as efficient operating costs.

By their very nature, target date funds mean the pension scheme will only need to manage as many funds as there are years to retire, rather than as there are members.

That means lower costs and more tailoring. Each pension fund can be managed independently based on how far away members are from retirement and how their fund has been performing. This is simply impossible if there are millions of individual funds to manage, as with the traditional lifestyled model.

Interests are aligned with in-house expertise

Does the scheme have an expert in-house investment team deciding on and overseeing the investment strategy? If so, it is likely they will be spending less money on consultancy, brokerage and outsourcing fees, which all eat into the value of members’ pots.

In-house expertise, particularly in trust-based schemes, also means decisions on how to invest members’ money are most likely to be made solely in their interests. If investment decisions are outsourced that may not always be the case. In-house investment teams can therefore provide greater alignment of interests in a cost-effective way.

Paul Todd is director of investment development and delivery at mastertrust Nest