Dutch pension fund performance

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In the Netherlands, defined benefit pensions are a feature of a "three-pillar" retirement funding system that includes, as one pillar, a state pension that provides a basic income, the level of which is linked to the statutory minimum wage. A third pillar includes individual pension products mainly used by the self-employed and employees in sectors without a collective pension scheme. [1]

The second pillar consists of the collective pension schemes administered by a pension fund or by an insurance company. Participation in collective pension schemes is mandatory, and 90% of the Dutch workforce are covered by these plans. At the end of 2008 there were about 600 pension funds in the Netherlands managing about € 700 billion in invested capital (a sum larger than annual Dutch Gross National Product). The largest fund in the Netherlands has more than 1 million active members and an invested capital in excess of € 150 billion. But there are also funds with less than 100 members and an invested capital of just a few million Euros. [1]

In the Netherlands there are three different types of pension funds:

  • Industry-wide pension funds (for a whole sector, such as the civil service, construction industry, hotel and catering industry or the retail sector)
  • Corporate pension funds (for a single company or a corporation)
  • Pension funds for independent professionals such as medical specialists and dentists. [1]

Performance studies

Huang and Mahieu (2010) explores the performance of Dutch pension plans over the period 1998 - 2006, using a sample of Dutch industry-wide pension funds. Dutch mandatory industry-wide pension funds are obliged by law to publish a performance measure known as a "z-score" to show their net-of-fees investment performance relative to a priori self-selected benchmarks. [note 1] These scores reflect the implementation quality of the strategic asset allocation.

Huang and Mahieu conclude:

"We find that pension funds as a group cannot beat their self-selected benchmarks and show no performance persistence. However, we do find that large funds perform consistently better than small funds. This might be attributed to factors like economy of scale in costs, expertise in asset manager selection, or effective monitoring of asset managers." [2]

The advantages of large size are reflected in Lum (2006) which examines Dutch pension returns from 1996 to 2005. Using the CEM database of 13 Dutch funds with total assets of €369 billion (2005), the study finds that the Dutch pension funds had average annual investment costs of 0.21%; produced a positive 0.60% value added; and registered a positive 0.50% information ratio. [3]


  1. The z-score takes the gross return of the fund minus its costs and subtracts the return of the benchmark minus implementation costs ( 10 basis points to 22 basis points). This difference is then divided by a risk calculation. The risk percentages assigned to the equity and fixed income investment are fixed by law at 2.6% and 0.6% respectively. For example, if a fund has an asset mix of 60% equity and 40% fixed income, then the risk measure = 0.6 * 2.6% + 0.4 * 0.6% = 1.8%.


  1. 1.0 1.1 1.2 The Dutch Pension System - Pensionenfederatie, available at: http://www.pensioenfederatie.nl/Document/Publicaties/English%20publications/Nederlandse_pensioensysteem_Engelstalige_versie.pdf. Viewed 7 Jan. 2014
  2. Huang, Xiaohong and Mahieu, Ronald, " Performance Persistence of Dutch Pension Funds" (September 15, 2010). Netspar Discussion Paper No. 09/2010-038. Available at SSRN.
  3. Lum, Herbert, Dutch Funds Added Value, 2006. Available at Investment Research, CEM bencmarking