The German financial supervisory authority BaFin has deemed “unnecessary” a comprehensive and regular reporting on costs shouldered by the country’s occupational pension schemes, against the opinion of the European Insurance and Occupational Pensions Authority (EIOPA).
The regulator considers superfluous a regular exercise on cost reporting as “there is no structural cost problem” for occupational pension schemes in Germany, it said.
BaFin also doubts that such comprehensive and regular cost reporting would lead to significantly cost cutting. It also noted that occupational schemes had to work hard particularly to get hold of data from asset management companies on costs in investment funds.
“In view of the low benefit and the high effort, such reporting does not seem appropriate,” it added.
BaFin’s view clashes with the opinion published by EIOPA in 2021, when it stated that national authorities should require Institutions for Occupational Retirement Provision (IORPs) to report annually on all costs and charges.
Last October EIOPA tabled proposals to change the IORP Directive, which included regular cost reporting, but only for pension systems in which those entitled to benefits bear risks. It is unclear to what extent this proposal will be taken into account, BaFin said.
Last year BaFin followed EIOPA’s suggestion, looking into information handed over by around 70 large Pensionskassen and Pensionsfonds, corresponding to 90% of the German occupational pension market, on their costs for 2021.
It concluded that average costs faced by German company pension schemes are “not too high”, BaFin added. Average total costs of German IORPs in 2021 amounted to 0.79% of capital investments at book value, or 0.72% of capital investments at current value, it said.
Costs arising from asset management, including personnel costs for managing the capital invested, costs for the custody and management of securities, and performance fees on investment funds made up the largest share of the average total costs for occupational pension schemes at 0.47 percentage points.
Investment costs are predominantly the result of investments held indirectly, BaFin said. Administrative costs were the second largest block at 0.19 percentage points, a figure almost identical to the one already known by BaFin.
Transaction costs, including costs from buying or selling investments, both in held in direct portfolios and in investment funds, for example brokerage commissions, subscription or redemption fees, closing costs, and implicit transaction costs, represented the third largest cost for company pension schemes in Germany.
Overall, the costs of running a German occupational pension scheme are almost at the same level of those incurred by pension funds in Netherlands, the largest IORP market in the European Union, BaFin said.
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