LCP ‘TER business’ 2011 report
21 December 2011

Pensions from Defined Contribution (DC) pension schemes in the Netherlands are being overestimated by as much as 25%, according to an LCP report published today, as providers fail to fully acknowledge the impacts of costs and overly-optimistic forecasts on benefit expectations.

LCP Netherland's "TERzake" report compares the investment funds used by Dutch DC schemes and the charges levied on the schemes by their pension providers.  The report examines the total expense ratio (TER) and performance of six Dutch insurers and two "Premium Pension Institutions" (PPIs). This year's report also introduces a further measure - the TER+ - which includes all costs relating to an investment fund which may not be included within the traditional TER, such as the insurer's asset management costs.

Evert van Ling, partner at LCP Netherlands and author of the report said: "We have introduced the concept of the TER+ to give scheme members a transparent view of the total investment costs they should expect to see impacting their pensions.  This is particularly important as higher costs can result in substantially lower pensions for members.

"A quarter of the investment funds analysed in the LCP report had a TER+ of 1.0% or more.   To put this into context, an increase to the TER+ of just 0.5% could result in a reduction to the final retirement benefit of between 3% and 11%, depending on the number of years an individual has left before they retire.    

"This year's report also shows that the data currently being used by providers to forecast pension payments - as communicated in the Uniform Benefit Statements - can lead to overly-optimistic expectations.  As a result, we estimate that members could receive 25% less in retirement than they are expecting."

Jeroen Koopmans, partner at LCP Netherlands added: "As well as highlighting the relative charges and performances of insurance schemes, the report also shows that DC pension schemes continue to be an area of significant complexity.  It's essential that pension schemes clearly communicate the impact of charges to their members, and equally important that members of DC schemes fully understand how to balance costs against performance gains".