Dutch pension funds saw their combined asset management and transaction costs rise by 14.7% to €7.6bn in absolute terms last year, on the back of increased performance fees and previously hidden dealing costs, according to LCP Netherlands.
In a year that saw the schemes’ total assets under management grow 8% to €1.31trn, the average cost level rose by 6.2%, or from 54bps to 58bps, the consultancy’s survey of 222 annual reports reveals.
This compares with a rise in costs of just 1% in 2016.
Jeroen Koopmans, partner at LCP and author of the survey, said he was surprised by the scale of last year’s increase, even though asset managers often charge more if assets under management rise.
LCP found around half of the increase in costs was caused by higher performance fees, which rose by 32% to €2bn, while combined returns decreased to 5.7% in 2017 from 10.4% in 2016.
Koopmans said lower returns do not necessarily mean lower fee ”as for a performance fee, the achieved returns only need to be better than the agreed benchmark”.
Transaction costs climbed by €331m to €1.3bn, he said, amounting to 0.1% of total assets, pointing out that several pension funds indicated they had only last year started disclosing transaction costs in accordance with rules set by the Pensions Federation.
According to LCP, higher asset management and transaction costs accounted for €819m of the total rise in costs last year of €968m, with changes in the asset mix as well as higher levels of assets under management behind the remaining €149m.
Large pension funds in particular incurred higher costs last year, although more than 60% reported an average 8bps fall in costs.
Meanwhile, the combined costs of pensions administration dropped 0.9% to €990m last year.
Costs per active participant or pensioner fell from €115 to €111 per participant – a decrease of 3.3%.
As in 2016, the cost of pension provision varied widely between the funds, with 55% posting increases of 12% on average and 45% reporting an average 8% fall.
LCP noted that industry-wide schemes – which tend to be large – incurred much lower than average costs at €91 per participant on average. Company schemes and professional pension funds, on the other hand, reported average costs per participant of €258 and €422 respectively.
Asset management costs and administration costs at general pension funds (APFs) were largely similar to costs at company pension funds.
LCP said the 2017 survey was the first opportunity to compare eight of the 16 compartments at five APFs, as these had still been company schemes in 2016.