UK - Pension schemes in the UK have seen investment management fees increase by £300m over a year, a new survey by LCP has found.

According to the consultancy, UK funds saw fees rise 11% in the year to September 2010, with the increase almost exclusively a result of market recovery rather than an increase in fees charged.

However, Mark Nicoll, Partner at LCP said that regardless of the current market, schemes should take an increase in charges seriously.

“There is always a temptation not to worry about fees when markets are rising.  But the opposite should be the case.  Against the background of continued pension deficits, trustees need to look at the running costs of their pension schemes,” he warned.

“Our research demonstrates that when markets rise, investment managers generally get paid higher fees even if they haven’t added any value,” Nicoll added, instead suggesting that trustees negotiate for a performance-related fee structure to reflect a mandates true performance.

The Investment Management Fees Survey found furthermore that pooled funds, particularly hedge funds and property funds, were demanding twice as much as the a pension scheme would charge its members in annual management charges.

LCP also criticised the lack of disclosure in the market, saying that if the additional fees were marked clearly it would be cause for trustees to reconsider.

Nicoll said further: “Being misaligned with your clients’ interests is one thing.  But a lack of transparency is inexcusable because trustees base their investment decisions on what managers tell them.”

He called on pension schemes to conduct manager benchmarking exercises and demand full disclosure of all costs in an effort to generate savings.

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