UK pension fund members could follow their Dutch counterparts in seeing a more-than 30% reduction in costs due to transparency rules.
Increased transparency about transaction costs and other expenses paid by Dutch pension schemes saw overall costs fall by 37% – with a number of investment managers replaced during the process.
The UK this year introduced regulations about cost disclosures for defined contribution schemes, similar to in Holland where the ‘FTK’ cost reporting framework has been active for seven years and schemes have had to report their costs to the regulator since 2015.
Kas Bank, an asset servicer based in Holland, studied costs in Dutch funds for the period 2014-2015 and said the results showed cost transparency was “worth it”.
As well as the 37% average fall in cost to pension fund members, Kas also found the average pension management cost per pension scheme decreased by 31% and the average investment cost per pension scheme decreased 37%.
In a quote supplied by Kas, Holland’s Stichting Telgraaf Pensieonfonds said: “High cost managers have been replaced with lower cost ones that perform similarly. Across the industry, the increased cost awareness has also encouraged pension funds to let go of higher cost (alternative) investment types and instruments.”
Holland’s framework has enabled pension funds to effectively evaluate and breakdown total costs, including transaction costs, associated with running a scheme, Kas Bank said.
The investment costs improvements were “notably attributable” to a decrease in annualised performance, management and transaction costs during the period, the bank said, though it added that “widespread consolidation” of Dutch pension scheme was also a factor in gaining lower costs through efficiencies.
“Transparency has ultimately enhanced communication around investment decisions across the entire value chain and their service providers, which includes improved investment strategy decisions, better control of research and other costs via true value-assessment,” Kas said.
Also quoted by Kas, Dutch scheme Stichting Pensioenfonds TNO said transparency made it easier to compare cost levels with various other pension schemes.
Pat Sharman, Kas managing director, said: “Research into the Dutch market clarifies cost transparency delivers multiple benefits, including better decision making and ultimately an overall reduction in costs.”
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