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Low-cost, passively run funds outperformed in 2016: researchers

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Passively managed pension funds with the lowest costs produced the best outperformance last year, a survey by a Dutch pension research bureau has suggested.

The Pensions Rating Agency (TPRA), an independent research group, ran a cost monitor based on 213 of the approximately 235 Dutch schemes last year. The group also found that active management hadn’t resulted in a consistent outperformance.

TPRA said asset management costs of the examined pension funds ranged from 0.06% at the Dutch pension fund of ExxonMobil to 1.69% at the Mars scheme.

According to the research bureau, the €3.1bn Delta Lloyd Pensioenfonds – which reported costs of 0.12% – outperformed by 1.5 percentage points. The €253m scheme of PepsiCo Netherlands – with costs of 0.17 – exceeded its benchmark by 1.8 percentage points.

The €1.4bn Mars Pensioenfonds, which incurred the highest recorded level of costs at 1.69%, still outperformed but only by 1.3 percentage points, TPRA said.

The research group reported that the average cost of asset management had dropped two basis points to 0.55% last year.

The research bureau found that pension funds had experienced only limited success in driving down their costs of pensions administration: the average cost per participant fell by just €0.13 compared to a year earlier.

TPRA’s methodology involved adding costs paid by the sponsor as well as those reported by the pension funds, which it said made the figures more representative.

According to TPRA, 93 pension funds had managed to reduce costs by 11% on average, while 99 schemes saw their costs increase by 17% on average.

Of the five largest Dutch pension funds, only the €389bn civil service scheme ABP and the €186bn healthcare scheme PFZW – with administration costs of €79.42 and €67.57 per participants respectively – were among the 10 pension funds with the lowest costs.

With €133.28, €101.31 and €100.92 per participant respectively, the large metal schemes PME (€45bn in assets) and PMT (€67bn) as well as building sector scheme BpfBOUW (€54bn) incurred costs that were too high for their scale, in the opinion of TPRA.

The pension research bureau reported that the causes of rising costs included a drop in the number of participants as well as the introduction of new pension arrangements. However, it also reported that significant savings could be achieved through switching to a new pensions provider.

With €1,941.35 per participant, the pension fund of polymer and fibre producer Invista had the highest costs of pensions provision.

In contrast, costs at the industry-wide scheme Personeelsdiensten were €42.63 per participant.

The group’s survey covering 2015 showed that costs had risen by 5.5% in the wake of the introduction of the new financial assessment framework (nFTK) and the adjustment of the tax-facilitated pensions accrual.

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