The Dutch Financial Markets Authority (AFM) has argued that pension funds should not only cite asset management costs but also include a breakdown of costs in their annual reports.

The AFM, together with regulator De Nederlandsche Bank (DNB), recently conducted a survey of the annual reports of more than 50 pension funds and concluded that determining exactly how costs related to risk and return was “hardly possible”.

The supervisor for pensions communications highlighted the impact of allocation on costs and noted that Dutch schemes’ annual reports at present failed to show the actual correlation.

It recommended pension funds make costs more visible through the relevant figures for individual asset classes and called for more clarity on gross and net returns, as well as estimated costs.

Pension funds should also report their transaction costs, the supervisor said, adding that small and average-sized schemes in particular had failed to reveal those costs fully.

The AFM said the cost survey would “remain on the agenda” for both the communications watchdog and the DNB, and that a serial survey into the relation between costs and returns would be conducted after this summer.

Yet the Dutch Pensions Federation said it strongly disagreed with the AFM’s call for pension funds to break down costs in annual reports.

It said schemes should do so in their newsletters or on their websites, “as these means of communication are actually being read by their participants”.

Gerard Riemen, director at the industry organisation, said: “Which participant or pensioner actually reads his pension fund’s annual report, let alone comprehends its content?

“The question of which method of communication is the most efficient for a given target group should be left to individual pension funds.”

Riemen said the AFM’s previous recommendations on costs had been well received by the sector, and that the supervisor should refrain from making these sorts of recommendations.

He also argued that international comparisons had shown repeatedly that Dutch pension funds were well ahead of the curve when it came to communicating asset management costs to participants.