Higher pension investment charges do not lead to higher returns – Danish consumer watchdog

Higher pension asset management charges do not result in higher returns in the Danish pension system, the country’s Competition and Consumer Authority has found.

In a comprehensive report published on its website, the watchdog said that there are “large price differences in asset management between pension companies”. However, savers should not expect higher returns from those providers that charge more for investment, it said.

The analysis by the Competition and Consumer Authority is based on data from a 2019 report, Competition in the market for pensions, which contained a number of recommendations to improve competition in the Danish pensions market.

The price that Danish pension savers paid to have their savings invested amounted to approximately 0.6 per cent of a pension companies' assets in 2017, corresponding to approximately DKK 14bn, it found. It said this is around 60 per cent of the average total cost for administering and managing pensions.

Its report also noted that historical returns are not a good indicator for future performance. Therefore, it is hard to choose a pension company that will have a high risk-adjusted return going forward.

The watchdog recommended that PensionsInfo, the website pension savers can use to see an overview of their pension savings, be expanded. It said savers should be able to use the website to compare how their company/companies perform in relation to other companies.

Currently, PensionsInfo uses standard rates for investment costs for a number of assets, which the watchdog believes makes it more difficult to compare investment costs across different companies. Therefore, it is recommended that savers should be able to view pension forecasts on PensionsInfo on the basis of the actual investment costs, as this will highlight the possible significance of asset management prices in pension forecasts.

However, Insurance and Pension Denmark has blasted the report and believes that competition in the pensions market is “extremely effective”, including the management of pension assets. It said that pension companies invest in different assets with different strategies, and therefore have different costs. However, it argued that data shows that the return on costs does not vary systemically between companies.

Commenting, Insurance and Pension Denmark deputy director, Jan V. Hansen, said: “Pension companies' strategies and costs vary, but the bottom line is that pension customers get value for their investment costs. We cannot at all recognise the picture that is drawn in the latest note from the Danish Competition and Consumer Authority about inefficient competition.”

He gave examples of several industry initiatives to improve transparency on costs, noting that every single Dane with a pension scheme has access to the cost they pay on their provider’s website.

“Openness and transparency about costs and returns have been a mantra for the pension industry for many years. We owe this to customers, and it supports effective competition for the benefit of the individual Dane and the economy,” he said and added that the Danish pension is “world-class” when it comes to efficiency and returns for customers.

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