Investment charges on Dutch pension funds averaged 0.53 per cent in 2012 according to figures from De Nederlandsche Bank (DNB), which says that higher fees do not mean schemes are overcharging.
The figures for Dutch schemes, which have regularly been cited as considerably cheaper than those in the UK in the debate over costs, exclude administration charges. The OFT report into workplace pensions found UK pension charges averaging 0.63 per cent, including administration.
The Dutch Bank figures, which cover 278 schemes, show charges ranging from 0.05 per cent to 1.1 per cent. The majority of schemes’ charges were between 0.25 and 0.5 per cent, with 0.4 per cent the most common charge.
More expensive schemes had exposure to private equity, hedge funds and real estate, for which charges had averaged 3.43 per cent, 3.38 per cent and 0.87 per cent respectively.
Performance fees represented 0.13 per cent of the 0.53 per cent total cost of investment charges.
A statement from DNB says: “Relatively high investment management fees do not automatically imply that pension funds are overcharged. The level of fees paid depends on the size of the fund, its asset allocation and the extent of active asset management. Large pension funds will generally be in a position to negotiate lower fees. A larger allocation to relatively more expensive alternative investments and a high degree of active management cause relatively higher fee expenses. It is up to the funds to offset the more favourable risk/return characteristics of these investments, owing to their alleged diversification benefits, against their higher costs.
Hargreaves Lansdown head of corporate research Laith Khalaf says: “Dutch pension funds have been championed as paragons of low cost investing, yet these figures show UK pension funds may actually be cheaper.
“We are currently waiting to hear if the DWP is going to impose a charge cap on UK pension funds, but actually the focus should be on ensuring employer governance committees are able to make sensible investment decisions, even if those may cost more. Crucially, if you cut fund charges you may not actually improve performance. Indeed you may worsen it, because your fund manager may not be able to invest in active strategies, or in certain asset classes which add protection and diversification, like hedge funds and property.”