Dutch industry-wide pension funds incur 40% lower costs when compared with company schemes, according to a survey commissioned by supervisor De Nederlandsche Bank (DNB).
The survey, conducted by Fieke van der Lecq, Gosse Alserda, and Jaap Bikker, attributed the difference to the usually more complex arrangements of individual company schemes, as well as their higher service level.
Bikker, a professer of banking and financial regulation at the School of Economics at Utrecht University, told IPE sister publication Pensioen Pro that DNB agreed that industry-wide schemes usually have simpler arrangements and were less likely to outsource board support.
He added that the cost differences had been corrected for scale.
The researchers found that implementation costs per participant varied widely, even at pension funds of equal scale. In addition, they found that the smaller the pension schemes were, the bigger the cost differences were.
Administration costs at the smallest schemes averaged €575 per participant, against €50 at the largest (sector) pension funds.
As costs at the smaller pensions funds ranged from a couple of hundreds of euros to €1,000, the study concluded that there was much scope for improvement.
According to the researchers, costs at occupational pension funds were 53% higher than at company schemes, “as they have to cash in contributions from all individual participants”.
They also concluded that pension funds with defined contribution arrangements incurred 12% less costs than schemes with defined benefit plans.
In contrast with the reporting recommendation of the Pensions Federation, Van der Lecq, Bikker, and Alserda also included deferred members in their calculations.
As a result, the costs they found were significantly lower than posted in pension funds’ annual reports.
Earlier surveys have suggested that asset management offers less scope for cost reduction through scale and that asset management costs are six times higher than administration costs.
One of the causes is that large pension funds are often invested in more expensive asset classes, such as infrastructure and private equity.