Costs and transaction costs
Pension funds must report the total costs of asset management in euros and as a percentage of average assets under management. The same applies to transaction costs.
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Future Pensions Act (Wtp)From the transition to structural benchmarking
Under the Wtp, costs and returns become more visible to members and the board faces new questions. What is changing? What do the policy choices made actually deliver? And how can costs and performance be assessed, explained and accounted for after the transition as well?
Benchmarking makes the development visible — before, during and after the transition.
More transparency
More transparency, more questions
With the introduction of the Wtp, members have detailed insight into their pension capital and its movements. This means they can follow not only their accrued capital, but also the returns and costs allocated to them. Within the same pension fund, differences can arise in returns and asset management costs.
This transparency is expected to lead to:
- More interest from members in their pension capital
- More attention to the returns and costs allocated to them
- More attention to the investment policy of funds
- Comparisons within pension funds (between age cohorts) and between pension funds, both by members and by the media
These developments call for a new way of communicating and accounting for costs by pension funds.
Costs as the new red flag
A good explanation is essential. Where the explanation falls short, lawyers see costs as the new red flag. The introduction of cohorts and possible cost differences within a single fund increases the risk of questions, complaints and disputes.
What does not change
The statutory key figures remain unchanged
The legislation on the key figures to be reported for implementation costs has remained unchanged. It reads as follows:
Costs per member
As regards pension administration costs, the costs must be reported in euros per member and as a total in euros. The number of members is the sum of active members and pensioners.
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.
The Wtp changes a great deal, but the importance of uniform cost definitions and of placing costs in context remains.
What does change
The contribution takes centre stage, the pension becomes more personal
From the member's perspective, what mainly changes under the Wtp is the way the pension is accrued, invested and ultimately paid out. The contribution therefore takes centre stage. It is important to avoid a misunderstanding here: it does not simply become a freely withdrawable “personal savings pot”. The pension remains collectively organised and risks are shared within the chosen scheme.
Under the Wtp, the personal pension capital and the contribution take centre stage. The investment return has a direct effect on personal capital, so that capital can rise but also fall more readily. There is more attention for guidance on choices.
In this way members get a more personal picture of their pension capital and will want to understand the movements and the outcome critically. In addition, differences between members will arise, particularly in investments. For older members, less risk will be taken when allocating the contribution. For young members more risk is taken, since this is expected to deliver a higher return in the long run.
Amendment 136: a stronger role for the accountability body
Through the adopted Amendment 136, the Accountability Body (VO) or Stakeholder Body (BO) has gained additional rights as from 1 July 2023 where changes to implementation costs are concerned. This means a more substantial role in assessing implementation costs.
Moreover, the VO/BO is asked to advise on board proposals that have major consequences for implementation costs.
What does this mean for governance?
Phase 1 · IBI Transition Mirror
The IBI Transition Mirror — from expectation to reality
The move to the new pension system cannot be assessed on the basis of a single measurement. The effects on costs, returns and administration only become visible over several years.
That is why the IBI Transition Mirror looks beyond a one-off baseline measurement.
Benchmarking several years before the transition gives insight into the development under the old system. Continuing the benchmark after the transition shows which changes actually occur and whether expectations expressed in advance are met.
The Transition Mirror compares pension funds at total fund level only, not at cohort level.
The Transition Mirror turns the baseline measurement into the starting point of a multi-year comparison rather than an end point.
Three questions the Transition Mirror answers
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What did we expect before the transition?
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What actually happened after the transition?
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Can we explain why?
Members and cohorts
One pension fund, different outcomes
Under the Wtp, differences can arise between age cohorts within the same pension fund. Because of differences in investment policy and risk profile, members may experience different returns and asset management costs.
A total return or average cost level of a pension fund is therefore not necessarily equal to the return or the asset management costs that are relevant for each individual member.
That calls for a clear explanation to members.
IBI does not benchmark at cohort level
The IBI benchmark provides an independent frame of reference for the pension fund as a whole. The pension fund then makes the translation to the various cohorts and members itself.
Phase 2 · structural annual benchmarking
After the transition: continue benchmarking structurally
After the transition, the relevance of benchmarking does not end. On the contrary.
The board wants to be able to follow what its policy delivers and how costs, returns and other relevant characteristics develop.
The Dutch Pension Fund Code aligns with this: the pension fund has a vision on the quality of administration and the associated cost level, and monitors and evaluates quality and costs annually.
Annual benchmarking thus supports the governance of the pension fund:
- Board
- Monitoring what policy choices deliver and assessing how costs and performance develop.
- VO/BO
- Supporting the assessment of and accountability for implementation costs.
- Supervisory board
- Having an independent frame of reference for internal supervision.
- Reporting and auditor
- Supporting a consistent and substantiated explanation of the development of implementation costs.
In this way benchmarking develops from a measurement around the transition into a structural instrument for monitoring, assessment and accountability.
Not measuring once, but continuing to measure, explain and account for it every year.
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A multi-year point of reference
Record the development of costs, returns and explanatory factors over several years. This creates a reliable basis for distinguishing structural developments from annual fluctuations.
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Measure and compare annually
Benchmark every year according to the same consistent methodology. This shows how the pension fund develops and how costs and performance compare with those of similar pension funds.
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Explain and assess
Show what causes costs and performance to change, and to what extent these developments relate to policy choices, complexity, service level, risk and return.
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Account and adjust
Use the benchmark for monitoring and accountability towards the board, the VO/BO and internal supervision, and to support the explanation in the annual report. Benchmarking thus becomes part of a structural annual governance cycle.
White papers
In depth: our publications on the Wtp
IBI has followed the consequences of the Future Pensions Act for implementation costs, governance and member communication since the new act was introduced. Several publications set out specific aspects in more detail. These publications are available in Dutch.
White paper
Wtp — Een nieuwe kijk op kosten
What the Wtp means for cost management, cost transparency and communication towards members.
Read the white paper
Special
Wtp en de rol van VO/BO
On the stronger role of the accountability and stakeholder bodies in assessing implementation costs.
Read the special
White paper
Compliance en uitvoeringskosten onder de Wtp
On the framework for implementation costs under the Wtp and what it means for compliance and accountability.
Read the white paper
Costs on the pension statement
Costs on the Uniform Pension Statement (UPO)
We are currently working on this topic. The publication will follow.
Coming soon
Keep structural sight of costs and performance
The transition is a moment. Assessing, explaining and accounting for costs and performance is a continuous process. With annual benchmarking you build a consistent multi-year series that allows the board, the VO/BO and other governance bodies to follow what the chosen policy actually delivers.
From expectation to reality. From the transition to structural insight.