Large differences between returns of Dutch DC arrangements

The returns of different Dutch DC arrangements varied considerably during 2017, according to research by LCP Netherlands.

The returns varied from 4 per cent to 14 per cent, particularly for members below the age of 50, according to research by LCP Netherlands into products with a neutral investment lifecycle.

Around 1.3 million Dutch employees have a DC pension and the majority of them use standard neutral lifecycle products. Depending on their pension provider, members below 50 years of age saw returns from 4 per cent to over 14 per cent during the past year. The returns are less discrepant for older members: between -1 per cent and 4 per cent. “Every percentage of difference in returns over a period of 40 years will give around a 17 per cent difference in pension result,” according to LCP.

LCP noticed a difference in return of around 4 per cent per year (from 6.5 per cent to 10 per cent) during the period between 2014-2017. This is mainly due to the investment risks the different lifecycles take. “Our research shows that the available DC products are very different. Upon selecting a pension provider, employers and employees need to look beyond the lowest costs or the highest expected retirement income,” LCP senior actuary Johan van Soest said. The asset management costs stood at 0.2 per cent to 0.6 per cent of the invested assets during the past year, similar to previous years.

The variation in lifecycle products and risk profiles is getting increasingly larger, according to LCP. “Some providers offer dozens of profiles.” There are large differences in asset mix and the reduction level of the interest rate risk. “Employers need to be aware of this when choosing a pension provider.” There are also significant differences in investment risk between various default lifecycles.

The average asset management costs within investment funds (including extra costs or discounts by the pension provider) have halved during the past ten years from 0.8 per cent to 0.4 per cent of the invested capital per year. There is little difference between the costs of the most aggressive and the most defensive risk profiles.

The report is based on research at five pension insurers (Allianz, ASR, Centraal Beheer, Delta Lloyd and Zwitserleven) and seven PPIs (ABN Amro, Aegon, BeFrank, Brand New Day, Cappital, LifeSight and NN).

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