The Dutch Authority for Financial Markets (AFM) has claimed that pension schemes in the Netherlands pay three times the actual administration and investment costs that they report in their annual accounts, following the release of findings from a study into pension scheme costs on 12 April
The AFM estimates that €3bn worth of assets is left unaccounted for, or is addressed to the wrong cost category, throughout the whole country as a result of poor cost monitoring by schemes.
The body says that part of the problem lies in the outsourcing of services to external managers. When it comes to investment, for example, schemes do not have an adequate overview of which costs are made for which investments.
Drawing on earlier cost studies, the AFM has calculated that if schemes had managed to decrease their costs by 0.25 percentage points for a period of 40 years, then they would have managed to gain 7.5% more in collective assets: A serious incentive for struggling schemes.
The survey showed that small and middle large pension schemes, in particular, could significantly increase their assets through better cost management. It is also this same group that, according to the AFM, have administration costs which are up to 12 times higher (in relative terms) than the big schemes like for example, ABP, the national civil pension scheme.
As high costs can also be the result of inefficient executions or complex regulations, bigger funds tend to have a better insight into their actual costs, giving them an advantage over smaller ones.
Recommendations and transparency
The AFM's recommendation is consolidation: The merging of smaller funds into one big fund to save on administration costs and making similar processes easier. The Netherlands has seen various consolidations over the past few years with positive result and experts expect to see more.
As a response to the study, a large numbers of MPs sent an open letter to the national newspaper NRC Handelsblad on 14 April, in which they warn pension funds in the Netherlands to make their costs public. If that openness is not there in a short period of time, then new legislation will be used to force pension schemes to provide the necessary information, they say.
Members are, according to the MPs, entitled to a full picture of their funds expenses, especially since it concerns figures far larger than the costs for annual indexation – something which many pension schemes say they had no money for during the past couple of years.
Big player Pensioenfonds Zorg en Welzijn (PfZW) immediately published a reaction to the letter on their website. The scheme says the costs are not as high as is being presumed by government, the AFM and the media. PfZW says that in 2010 their total costs for providing pensions including investments, administration and communication are 0.5% of the total assets.
Peter Borgdorff, director of the scheme, said: "Of course we have to be careful of costs. Every penny saved means better pensions. That is what we aim for continuously. We do not make a profit, we do not have shareholders. A collective pension ensures the lowest investment costs, which means more pension money for the same Euro."
And for 2011...
The financial authority also published its annual report last week. In the report the AFM stated that it foresees a shift towards DC-style schemes.
In the light of this prediction, which ensures less stability for employees when it comes to their retirement income, it is of even higher importance to provide members with enough and timely information so that they can arrange alternative provision.
In its report, the AFM also repeats earlier warnings to pension schemes that their communication should be clearer. However, it also recognises that many funds have already adopted better practices with regards to information provision. A target group that still needs special care however are the employees of the small- and medium companies, says the AFM.
First published 18.04.11
azeevalkink@wilmington.co.uk
