Cost transparency could reduce pension fund costs by 37%

A full cost transparency framework can reduce the total cost of ownership of a pension fund by 37 per cent, data from the Dutch market has found.

Research by KAS Bank also found that between 2015 and 2016 the framework also decreased the average pension management cost by 31 per cent and the average investment cost by 37 per cent.

The findings come as the UK pensions industry moves closer to implementing an industry standard cost disclosure template, which has been recommended practice for Dutch pension funds for over seven years.

A cross-sector push from the UK pensions industry, including the Department for Work and Pension’s Disclosure of costs and charges paper, the Local Government Pension Scheme code of transparency for asset managers and, more recently the Financial Conduct Authority's fee disclosure taskforce.

Despite this, the specifics of how cost-disclosure will be reported are yet to be defined.

Last week, the Work and Pensions Committee launched an inquiry into the transparency around pensions charges, investment strategy and performance to consumers.

The framework allows pension funds to break down and evaluate total costs, and the decreases were particularly noticeable over the annualised performance, management and transaction costs.

Dutch schemes have also been required to report costs to the regulator since 2015.

KAS Bank managing director Pat Sharman, said: "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.”

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