Lane Clark & Peacock's TER zake(n) report

Utrecht, 2 November 2009

Significant differences in investment costs of pension insurances

Lane Clark & Peacock presents the TER zake(n) (TER 'business') report today in which the outcome of a comparative study into the costs of investment funds for group pension insurances has been recorded. The study shows that significant differences exist between various insurers. Higher investment costs could lead to a substantially lower pension for employees or to pension contributions that are too high.

Lane Clark & Peacock (LCP) has looked at the so-called Total Expense Ratio (TER) that is being charged by investment funds. The annual accounts of 242 investment funds used by 8 of the largest pension insurers in the Netherlands were researched. These funds managed approximately € 30 billion at the end of 2008.

The TER of most funds lies between 0.03% and 2.15%. The lowest TER was found with Zwitserleven and AEGON. It is remarkable that AEGON also has the highest TER for investment funds. In most cases it was not possible to find an explanation for these differences. Only a few funds apply such an exceptional investment strategy that this might explain the higher costs.

In the group pension market the TER has a significant influence on the pension result. A minor difference of 0.5% higher costs could result in a pension that is up to 9% lower. With guaranteed pensions this leads to a 9% higher pension contribution, for which often the employer has to pay. Thus minor differences in the TER could have big consequences for the affordability of the pension scheme.

Evert van Ling, partner at LCP, states that in practice the focus is more aimed at the costs that are included in the insurance contracts. In doing so the TER of investment funds is often disregarded. Due to lack of attention for the TER, differences in costs between pension schemes are often much larger than they might initially seem. Van Ling therefore urges insurers to observe more transparency in this field.