NETHERLANDS - Insurers still do not provide sufficient clarity about the costs they charge on defined contribution (DC) arrangements, causing overly high retirement expectations among members, according to the Netherlands Authority for the Financial Markets (AFM).

The AFM found charges on contributions varied widely.

For every euro paid into a DC pension, for example, the amount actually invested ranged from 53 cents to 90 cents.

The variance in charges, generated by calculating the pension accrual of 170 scenarios, has significant implications for retirement incomes, the AFM said.

“Investing only 53% rather than 90% of a contribution leads to a lower pension accrual of 41% on average,” it added.

The body said if costs were maximised on the level recently advised by the insurers lobbying organisation VvV, participants would receive a 21% lower pension than if 90% of the contribution had been invested.

Moreover, a random check has shown only 15% of the schemes use the maximum fiscal leeway.

The AFM said its recent findings tallied with earlier research showing “the information about costs for DC schemes is not clear and that quality of advice to employers is significantly sub-standard, while DC arrangements carry significant risks”.

In a response to the AFM findings, the VvV said it had taken the initiative to issue a yearly full statement of costs and premiums to participants in DC schemes.

It indicated that its advised costs maximum - 1.5% of accrued pension rights plus 9.5% of the yearly contribution - leads to a 20% higher pension capital than the AFM’s worst example, of 53% invested of the paid premiums.

The insurers representative body reiterated it intended to discuss the matter with the labour foundation Star, providing an insight into the link between contribution and pension accrual, improving the information on risk and return, and the link between tailor-made products and implementation costs.

In April, the AFM argued the expertise requirements of pension advisers must be tightened, as their overall quality of advice was below the mark.

Only 25% of the advice given to small and medium-sized employers was considered to be of an acceptable level, it found.

“It is important that all improvements as proposed by insurers, as well as employers and employees, are finally implemented,” the AFM said.

According to the AFM, the targeted DC arrangements are largely offered by insurers and, to a very limited extent, pension funds.