NETHERLANDS - Dutch pension funds' investment costs are as much as three times higher than they report, according to the Financial Markets Authority (AFM).

As a consequence, as much as €3bn of costs a year goes unreported, the supervisor said.

After conducting an exploratory survey, the AFM concluded that small and medium-sized pension funds in particular could increase their assets significantly by better managing investment and administration costs.

It added: "A cost decrease of 0.25 percentage points will increase the collective pension assets by 7.5% in 40 years."

The AFM attributed the under-reporting of costs to external asset managers' practice of discounting costs in net returns.

According to the regulator, the administration costs of small pension funds are 12 times higher on average than those of the larger schemes, which are in a better position to demand full transparency from asset managers.

In the AFM's opinion, asset managers should provide full transparency, while pension funds should inform their participants about costs through annual reports, as well as a new instruction leaflet.

It said: "Costs only can't be the main reason for scaling up, which isn't easy anyway."

Schemes that scale up must not only harmonise different arrangements, but also overcome fiscal and competition-technical hurdles created by the government, the Pension Federation said.

The federation agreed costs could be cut through asset manager transparency, but stressed that schemes' costs varied due to differing pension arrangements and service levels.

It also pointed out that ongoing new legislation and communication obligations lead to additional implementation costs.

Hans Snijders, chief executive at pension provider and asset manager Syntrus Achmea, said: "Transitional arrangements, exemptions and complex legislation cause relatively high implementation costs."

As an example of a barrier for a merger, Snijders cited the transfer tax of 6% pension funds incur if they want to merge their property portfolios.

"This is an improper way of taxation, as a merger does not change the property situation," he said.