Our analysis finds that Dutch pension schemes working under the FTK cost reporting framework realised a significant reduction in costs between 2015-2016:
The average Total Cost of Ownership (TCO) per pension scheme decreased by 37%
The average Pension Management Cost per pension scheme decreased by 31%
The average Investment Cost per pension scheme decreased 37%
08 Aug 2018
As the UK pension industry moves closer to implementing an industry standard cost disclosure template, insightful evidence from the Dutch pension market highlights the tangible benefit of a comprehensive cost reporting framework. KAS BANK, which services around a third of the Dutch pension market, has found that the average Total Cost of Ownership (TCO)1 per pension scheme it services has decreased by 37%2 between 2015-2016.
The cost reporting framework for Dutch pension funds (FTK) has been a recommended practice for over 7 years; with the regulatory requirement to report on costs to the regulator (DNB) in effect since 2015. The framework has enabled pension funds to effectively evaluate and breakdown the total costs, including transaction costs, associated with running a scheme. Key findings from the analysis found that in the 2015-2016 period found that average Pension Management Cost per pension scheme decreased by 31%. Similar cost efficiencies were found in the average Investment Cost per pension scheme figures, which decreased by 37%. These investment costs improvements were notably attributable to a decrease in annualised performance, management and transaction costs incurred in the period.
The findings are linked to the widespread consolidation of Dutch pension schemes, in addition to the introduction of a cost transparency framework, leading to greater 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.
Survey Dutch pension schemes
KAS BANK subsequently surveyed their Dutch pension scheme clients on how a higher degree of cost transparency has impacted their schemes and associated costs. According to Stichting Pensioenfonds TNO, “We have benefited in the sense that now, DNB is reporting all the different pension funds total cost levels. This way, the sector is more transparent and it’s easier to compare our cost levels with various other pension schemes.” Commenting on average costs, Stichting Telegraaf Pensioenfonds added: “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.”
Following a cross-sector push from pension professionals, industry bodies, and regulators, the UK pension industry is now moving towards mandatory cost transparency as highlighted ‘Disclosure of costs and charges’3 published by the DWP. This has been supported by the efforts of the Local Government Pensions Scheme (LGPS) code of transparency for asset managers in May 2017, and the FCA’s establishment of a fee disclosure taskforce, to standardise fee transparency within the fund management industry.
While specifics of how cost disclosure will be reported are still being defined in the UK, it is clear there is a need for a holistic view on all costs impacting schemes to ensure the sector achieves maximum value for its members.
Leveraging its experience of cost reporting in the Netherlands, KAS BANK launched their Cost Transparency & Benchmarking (CT&B) service and dashboard for UK schemes in June 2017. A bold first step towards providing a coherent cost reporting assessment for scheme trustees and their governance committees.
"Having supported our pension fund clients in achieving cost transparency in The Netherlands, we’ve taken a leading role in the UK, helping the pension’s market bed in a new system of cost disclosure. Research into the Dutch market clarifies cost transparency delivers multiple benefits, including better decision making and ultimately an overall reduction in costs.”Pat Sharman, Managing Director, KAS BANK
1: The Total Cost of Ownership is the sum of the pension management costs and investment costs.
2: The reduction in TCO is calculated by the combined decrease in average Pension Management Cost and in average Investment Cost.