Large Dutch industry-wide pension funds pay considerably more for asset management than smaller company schemes, without achieving a noticeable increase of returns, a survey by actuarial consultant Lane, Clark & Peacock (LCP) has suggested.
In its annual survey of more than 230 Dutch schemes, covering 98% of the market, LCP found that the €334bn civil service scheme ABP and the €156bn healthcare scheme PFZW spent 0.69% on average on asset management, whereas the other schemes paid 0.39% on average.
LCP partner Jeroen Koopmans said: “However, we haven’t observed a direct link between asset management costs and returns on investments.”
Koopmans attributed the differing asset management costs in part to performance-related fees, with industry-wide schemes and company pension funds spending 0.21% and 0.05%, respectively.
Although he acknowledged that returns were not always reported clearly or uniformly, and that the two-year survey period was relatively short, he said he was comfortable in concluding that cost-efficient investment need not come at the expense of performance.
LCP found that Dutch pension funds’ asset management costs had increased by 1 basis point to 0.54% last year, whereas transaction costs decreased by 1bps to 0.09% on average.
In light of the survey’s results, Koopmans said pension funds’ boards should provide more detailed explanations of their charges, and that they could do more to lower investment charges, either individually or jointly with other pension funds.
According to the consultant, administration costs have increase by €4 to €122 per participant on average in 2013, reversing a downward trend.
“This is largely due to the implementation of many changes in pension regulations,” Koopmans added.
“Because pension funds are facing further major changes this year and next, cost containment will remain high on the agenda for pension funds’ boards.”
LCP’s survey also showed that administration costs at ABP and PFZW averaged at €84 per participant.
Costs at the other schemes came to €145 on average, but ranged between less than €100 to almost €1,000 per participant.
“The next step for pension funds,” Koopmans said, “is to explain why their costs were at an acceptable level, and how they contributed to their goals. It is important to demonstrate that they are cost-effective in relation to their objectives.”
LCP claimed many Dutch schemes often ignored the guidelines issued by the Pensions Federation, which are to be enshrined into law through the new financial assessment framework (FTK) and new legislation for pensions communication.
The consultancy said pension funds should report investment returns uniformly – preferably as gross investment return, including interest hedge returns – and report total investment costs separately, to improve clarity on their net return.