Annual management charges for defined contribution investments are now 10 basis points lower than in 2017, a new report has found. The study also suggests four in 10 larger schemes would consider higher charges to access illiquid assets, but just one in 10 smaller schemes would do so.

Annual management charges are still reducing despite the industry focus on value not cost, WTW’s 20th annual DC Pensions and Savings Survey 2025 has found, while fewer bespoke default funds are being offered. 

Annual management charges for DC investments have decreased as nearly two-thirds of schemes have charges below 30 basis points.

The survey also suggests 39% of larger schemes, but only 12% of smaller ones, would consider increasing charges to access illiquid investments.

Helen Holman, who heads up DC consulting UK at WTW, said: "The question is whether we have now reached the stage where the focus on driving costs down has gone too far and whether there is room to increase value for money by accessing alternative investment strategies that can provide growth, diversification and value, despite higher costs.”  

Provider Standard Life said on Wednesday that it will provide a new default option that includes private market assets, specifically a mix of private equity, real assets, infrastructure, private debt and venture capital. The allocation will go up incrementally to a maximum of 25% and is expected “to deliver added diversification to the other asset classes within the profile”.   

Standard Life did not say if it expects higher returns from private market exposure. Private equity has underperformed listed equity in the short term, and while proponents claim that it will outperform again over the longer term, this is not guaranteed.   

“Whether illiquid assets, such as private equity or infrastructure, hold the potential to enhance risk-adjusted returns is a key debate in the pension industry, with the UK government seeking to encourage greater investment in illiquid assets via the Mansion House Compact,” noted Holman.  

Some believe that while private equity can have a role to play, investment performance for young DC savers in the UK has not lagged their Australian peers, who have higher exposures to private markets.

As the UK DC sector consolidates, there has also been a clear trend towards ‘off the shelf’ default options. Fewer than half (47%) of funds had this in 2017, rising to 79% this year.

Elsewhere, WTW said employers are prioritising a better employee experience when it comes to retirement savings, rather than seeking to either increase contribution rates or cut costs. Seven in 10 employers are prioritising building engagement and improving retirement outcomes. The report also suggests that 15% of employers who have their own DC trust are considering moving to collective DC in the next two years.