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Legislation, standards and supervisionThe statutory key figures for implementation costs, the framework that came about through self-regulation, and what the supervisory authority says about it.
The legislation on the key figures to be reported for implementation costs has remained unchanged under the Wtp. It reads as follows:
For the explanation of implementation costs, the AFM refers to the Recommendations on Implementation Costs established through self-regulation. This explanation enables members to assess costs in context. In other words: what do I get back for these costs, taking account of policy decisions? Consider, for example, returns and service.
It is important that benchmarking is carried out on the basis of uniformly calculated statutory key figures as set out in the Recommendations on Implementation Costs: the applicable framework for pension funds for reporting implementation costs, established through self-regulation by the committee on reporting and implementation costs of the Pensioenfederatie, with Anne Laning and Eric Veldpaus as important co-authors.
The draft version was coordinated with, among others, pension funds, asset managers, pension administration organisations, accountants and the supervisory authorities DNB and AFM. The aim was to establish that the requested data can be delivered and verified by the auditing accountants. It is important that supervisory authorities also endorse this.
“I do not see the Recommendations on Implementation Costs as a purely technical compliance issue, but also as a governance and accountability issue, in which compliance certainly plays an important role. Precisely in the case of self-regulation and open norms, it is about keeping the board focused on the underlying rationale of transparency, and not merely on formal compliance. In addition, disputes about costs can give rise to legal risks.”
“In view of the Wtp, this issue is becoming more urgent. The introduction of cohorts and possible cost differences within a single fund increases the risk of questions, complaints and disputes. Timely, clear and explainable communication is essential in this, but also complex.”
The Pensioenfederatie's framework for reporting implementation costs, revised version 2016. The document is available in Dutch.
Download the Recommendations View the 22 bold-typed recommendationsAll bold-typed recommendations fall under the ‘comply or explain’ principle, unless legislation and regulation prescribe a recommendation as mandatory — such as the three key figures that must be reported. If a pension fund chooses to deviate from a recommendation, it includes an explanation of the reason for the deviation in its annual report.
The Dutch Authority for the Financial Markets (AFM) has long paid attention to the transparency and accountability of implementation costs at pension funds. In a series of investigations the AFM examined the way in which pension funds report and explain their costs.
Following the 2011 cost investigation, the Pensioenfederatie established the Recommendations on Implementation Costs through self-regulation within the pension sector. This self-regulation was accepted at the time by minister Henk Kamp, on the condition that compliance would be tested periodically by the AFM. Self-regulation does not mean that compliance is optional: with the Recommendations the sector imposed a set of standards on itself, which pension funds are expected to meet.
The most important AFM investigations are listed chronologically below. The 2021 investigation is highlighted separately, because it addresses not only the reporting of costs, but explicitly also the accountability, context and comparison of costs.
In 2011 the AFM turned its attention to the transparency of pension funds’ implementation costs. The investigation was an important moment in the development towards greater insight into, and accountability for, the costs of pension administration.
View the AFM investigationThe AFM examined the way in which pension funds reported on asset management costs and transaction costs in their annual reports.
View the AFM investigationIn a follow-up investigation the AFM again focused on the transparency and reporting of asset management and transaction costs by pension funds.
View the AFM investigationIn 2021 the AFM investigated cost transparency across virtually the entire Dutch pension sector. For this purpose 166 annual reports were examined.
The AFM found not only shortcomings in the reporting of implementation costs, but also that costs were still insufficiently related to the factors that can explain the level of those costs.
Only a limited number of pension funds, for instance, linked pension administration costs to service level or complexity. The relationship between asset management costs, risk and return was also still insufficiently explained.
In its investigation the AFM also assessed the extent to which pension funds followed up, in their annual reports, on the recommendations of the AFM and the Pensioenfederatie.
Investigation into cost transparency and accountability in 166 annual reports of pension funds.
View the 2021 AFM investigationFor a sound assessment of implementation costs, the level of those costs is not the only relevant factor. The context in which the costs are incurred matters as well. Differences in costs between pension funds may, for example, be related to differences in scale, complexity, service level, population, investment policy, risk and targeted return.
“How high are our costs compared with those of other pension funds?”
“Are our costs appropriate to our policy choices, and what do we get in return for them?”
The findings of the AFM also drew political attention to the cost transparency of pension funds.
Following the 2021 investigation, questions were put to the House of Representatives. The answers underlined the importance of cost transparency. Transparency must enable stakeholders to form an opinion on the relationship between return, risk and costs, and on the relationship between costs and benefits. In this way the importance of sound reporting, explanation and accountability of implementation costs was underlined at political level as well.
The successive AFM investigations show that cost transparency goes further than correctly reporting cost figures.
For a pension fund board, what ultimately matters most is being able to assess and explain why costs are higher or lower, and whether they fit the policy choices made and the performance delivered.
Sound benchmarking provides an objective frame of reference for this. Costs are then not simply compared with one another, but assessed in conjunction with the factors that can explain differences between pension funds.
Benchmarking thus becomes not a ranking, but an instrument for governance assessment and accountability.
Since 2019 the Pensioenfederatie has sent its members an annual mailing at the end of each year. In it, the Pensioenfederatie emphasises that costs must be viewed in context, and explicitly names the following characteristics.
These characteristics form the basis of the IBI indices. See how we translate them into radar charts.
The findings of the investigation were discussed in the House of Representatives on 9 November 2021. Below is an overview from 2021 up to and including that debate, together with a short summary of how the Recommendations on Implementation Costs came about.
We are happy to think along about the accountability and communication of your implementation costs.
