Dutch pension funds could improve how they report performance by clearly distinguishing between gross and net returns, according to consultancy firm LCP.

The group examined annual reports of 222 pension funds covering 2017. It also looked at pension funds that had transferred to sections of general pension funds (APF). The research showed that approximately half of the schemes had failed to provide clarity on whether their returns were gross or net of fees and costs.

However, LCP noted that reporting of the contribution of interest rate and currency hedges to schemes’ overall results had improved relative to previous years.

Jeroen Koopmans, partner at LCP Netherlands, said that at half of the pension funds the company assessed it was not immediately obvious whether the reported return was before or after costs.

“The answer could usually be found elsewhere in the annual report, but sometimes not at all.”

Koopmans cited examples of pension funds’ use of phrases such as “weighted return” or “usually excluding costs and asset management fees”, which he said could be confusing.

LCP found that schemes with such confusing descriptions about returns included the pension fund of supervisor De Nederlandsche Bank.

In the consultancy’s opinion, pension funds should report both gross and net returns as percentage of their assets, with the difference corresponding to their asset management costs.

“Improved uniformity would be desirable as it would avoid a wrong interpretation, and it would also improve the comparability between pension funds,” said Koopmans.

Despite lauding the improved reporting of the results of hedging strategies, he said the impacts of interest rate hedging were difficult to compare “as some funds predominantly hedged through swaps, whereas others favoured bonds for this purpose”.

LCP also advised pension funds to report the returns of individual asset classes in percentage terms rather than in nominal currency terms.