How I get paid to build up my pension

As discusses here I am a big fan of my current defined contribution (DC) pension and have moved one of my ex-employer's defined benefit (DB) pensions into it to increase my anticipated pension substantially. This post discusses the yearly expense ratio of my DC pension.

What is the yearly expense ratio of a DC pension?

I can only talk about my own pension here as I do not know the numbers for any other DC pension. I currently participate in the Essentiepensioen from Nationale Nederlanden, although it will not be long before it merges with BeFrank. Essentiepensioen offers 3 full-service profiles with different risk profiles (defensive, neutral and offensive). Moreover, participants have an option to run their own show and buy their own funds. 

Fund choice is limited but includes one low-cost index fund, namely the ishares developed world index fund. I put my full pension payment in this fund every month. It has a yearly expense ratio of 0.17%. Very decent, especially considering the fact that all other (actively managed) funds are around 1%. 

Collective discounting brings my expense ratio below 0!

The cool thing is that my company negotiated 0.2% discount on the expense ratio. >95% of people are in one of the full-service profiles so they still pay somewhere around 0.8%. Nationale Nederlanden seems to have overlooked the fact that there might be one or two smarty pants who pick their own funds AND go for a 100% ishares developed world index fund. I guess this is mostly caused by their old-world thinking, you need multiple old-school funds (real estate fund, new energy fund etc.) for diversification purposes. As there is only one cheap option it seems they assumed everyone would also buy at least one of their more expensive funds, averaging the cost to above 0. 

But with the developed world index fund I own stocks of 1000s of companies in the 23 developed countries of the world! No need for further diversification. My costst are -0.03%. I get paid as a thank you for them taking care of my pension!

Costs are killing dreams

Pension funds charging above 2% fees are not unheard of, see a comment by Bart here. Needless to explain the FI community how devastating this is but I still added a chart showcasing just that. Someone with a job paying a bit above the median will pay around €500 of his gross salary into his pension fund. If that pension fund had invested this amount into the MSCI world index 30 years ago, this is what had happened with real returns of that index. Just over €217k down the drain after 30 years by charging 2% fees... This is what happens if you feel a €2 fee for every €100 you want to invest sounds reasonable. You get hammered by the lower interest compounding!

I am happy to show off how well my pension fund is treating me 😉 However, the real point I am trying to make is that it is well worth investigating the different pensions you have from different previous employers and move them to your new employer if this makes financial sense. Unfortunately it is not always easy to establish the cost structure of a pension. A lot is hidden (on purpose?) and I would not be surprised if there is a “pension gate” around the corner even before we have fully dealt with the “woekerpolis” issue here in the Netherlands. It strengthens me in my firm belief sorting out your own financial future is by far the best way to go.