The true cost of pensions; UK vs Netherlands – guest blog from Emma Craig of KAS Bank

true cost


Yesterday the Financial Services Consumer Panel released a paper outlining key issues for long term savers created by opacity in the true cost of investing in pensions. As auto-enrolment of workers into (predominantly) Defined Contribution pensions continues apace the impact of under-reported costs comes increasingly to the fore. Research showed that over a savings lifetime an annual charge of 1% could reduce the value of an individual’s pension pot by 24%. Whilst the charge cap of 0.75% has been recently introduced to combat the charges issue, the panel found that many costs – particularly transaction costs – are not measured within this cap, leaving the consumer still exposed to this risk but without sufficient information.

In contrast to this, the Netherlands has been seeking to establish the true cost of investment for savers for several years, and there are lessons that the UK can learn from this. In January 2014, the Dutch regulator (DNB) presented the results of its recent investigation into the management fees of Dutch pension schemes. In the report, Dutch pension funds were obliged to report their investment costs broken down by asset class.  Although according to the DNB, transparency around asset management fees has generally improved, 28% of schemes in the sample could not sufficiently extrapolate the impact of fees on their portfolios. The DNB has condemned this as ‘unacceptable’ and, in contrast to fee-capping on this side of the North Sea, the DNB is considering a tough love approach to the problem, which would entail high penalties for schemes which fail to properly disclose management costs.

And where the Regulator goes, at least in the Netherlands, the industry follows and Pension Funds have been increasingly hungry for data, and not just cost data. It is not unusual for Pension Funds to demand of those who manage the data, the Custodians and Fund Accountants, information on costs segmented by asset class, manager fees vs transaction costs (including the transaction costs of bond trading segmented by type of instrument), and so on. This is a level of detail that is unprecedented in the UK environment either in the regulatory space or the pension space. The Custodian Fund Accountants in the Netherlands, such us here at KAS BANK, have responded by creating tools to enable Trustees to digest all of this data. What’s more there is no mention by Asset Managers of NDAs, the Dutch Regulator demands the data after all!


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About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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