NETHERLANDS - The trade bodies of Dutch pension funds have criticised the findings of a comparative study by PrciewaterhouseCoopers on administration costs of collective pension schemes by insurers and pension funds.

The lobby-organisations VB, OPF and UvB, argued in a letter presented to the house of representatives that they question whether the research really gives insight into average administration costs of pensions. Officials will today also discuss the outcome of that research with social affiairs' minister Piet Hein Donner.

"PwC compares the costs of insurers with those of pension funds with a completely different scale. This comparison will not hold water," said the pensions organisations in the letter.

The study, published in April 2008 and commissioned by the Dutch Association of insurers, argued insurers were more cost-efficient than pension funds in cases where contracts had 100 to 1,000 participants, as the average cost per participant through an insurer was €337 comapred with €602 charged by pension funds.

Interestlngly, the study found the larger the fund the smaller the difference would be so for contracts with 10,000 to 100,000 participants, insurers costs added up to €61 on average compared to €98 per participant within pension funds.

The PwC researchers did not compare contracts with less than 100 or more than 100,000 members as they found either no insurer was big enough or no pension fund small enough to provide that comparison.

But pension funds representatives pointed out in their letter that the average pensions insurance contract has 20 participants while 4.2 million people in the Netherlands are members of a pension fund with more than 100,000 participants.

While the average costs per participant amounts to €45 at an occupational pension fund, the pension fund representatives concluded from the PwC report that these costs add up to almost €500 for a contract with an insurer.

Scale does matter, they argued in the letter, "but it is only a part of the necessary comparison of funds and insurers".

Furthermore, administration costs are just one component of the total costs that an insurer charges, they argued, and to the representative bodies claimed premiums are generally higher at an insurer because of higher reserve requirements.

" This is not taken into consideration in this research. Investment costs and the profit margins should be included as well," said the VB, OPF, and UvB collective.

In the same letter, the bodies also challenged an earlier statement made by Donner suggesting pension funds have taken up riskier investment strategies.

"This holds when measured over a longer period, for example as of 1990. That is why we have seen rising returns," said the grou.

However, they argued Donner has ignored the fact that pension funds have pursued a more diversified investment strategy over the last five years.

"The percentage of equities [held] has been reduced and supplemented with new asset categories, leading to more risk diversification. Hedging of risks has been given a lot of extra attention as well," said the lobby groups

They also argue that a letter by Donner suggested pension funds with a relatively high cover ratio have conducted the right policy whereas officials believe such a general conclusion can not be drawn yet.

Although variations in investment strategies might explain some differences, the trade bodies said they would prefer to wait for the earlier announced study on investment policies by Minister Donner "before drawing conclusions".

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