14/04/2011
By Ilonka Oudenampsen
Better cost control could increase pension assets, especially of smaller and medium-sized pension funds in the Netherlands, in the long term according to exploratory research by the Dutch Financial Markets Authority (AFM).
The research showed that the actual investment costs of pension funds are two to three times higher than is written in annual reports, resulting in €1.5 to €3 billion a year not being reported as costs. AFM said this is partly because external asset managers include costs in their net returns, making them invisible for many funds, and therefore actual investment results cannot be judged properly.
AFM said that the biggest pension funds do know their investment costs as they put pressure on their asset managers to be completely transparent. For smaller pension funds this is harder to do.
The research into administration and investment costs of pension funds found that most funds have too little insight into their costs, although they have a big impact on the assets. Many funds are already developing good initiatives to save costs, but sometimes run into practical or legal obstacles, said the AFM.
A cost decrease of 0.25% over a period of forty years will increase the collective pension assets by 7.5%, according to the research. However, AFM admits that the degree to which cost reductions can be realised differs for each pension fund.
It said that it is not only trustees who benefit from more insight, arguing members should also be informed about the costs as they have such a big influence on pension benefits.
Administration costs are about 12 times as high for the smallest pension funds as for the biggest funds, meaning small and medium sized funds in particular can save costs by consolidating funds and simplifying arrangements. Research shows some funds have already proven that this approach work, AFM said.
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