The Impact of Scale, Complexity, and Service Quality on the Administrative Costs of Pension Funds: A Cross-Country Comparison

32 Pages Posted: 25 Oct 2011

See all articles by Jacob Antoon Bikker

Jacob Antoon Bikker

De Nederlandsche Bank; Utrecht University - School of Economics

Onno W. Steenbeek

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); APG All Pensions Group

Federico Torracchi

Dutch Central Bank (DNB)

Date Written: August 1, 2010

Abstract

Administrative costs per participant appear to vary widely across pension funds in different countries. These costs are important because they reduce the rate of return on the investments of pension funds, and consequently raise the cost of retirement security. Using unique data on 90 pension funds over the period 2004–2008, this paper examines the impact of scale, the complexity of pension plans, and service quality on the administrative costs of pension funds, and compares those costs across Australia , Canada , the Netherlands , and the US . We find that, except for Canada , large unused economies of scale exist. Analyses on a disaggregated level confirm economies of scale for small and medium pension funds. Even though the pension funds in the sample are among the largest in the world, further cost savings appear to be possible. Higher service quality and more complex pension plans significantly raise costs, whereas offering only one pension plan reduces costs, as does a relatively large share of deferred (or sleeping) participants. Administrative costs vary significantly across pension fund types, with differences amounting to 100%.

Keywords: Pension funds, Administrative costs, Scale economies, Service level, Complexity, Optimal scale

JEL Classification: G23

Suggested Citation

Bikker, Jacob Antoon and Steenbeek, Onno W. and Torracchi, Federico, The Impact of Scale, Complexity, and Service Quality on the Administrative Costs of Pension Funds: A Cross-Country Comparison (August 1, 2010). De Nederlandsche Bank Working Paper No. 258, Available at SSRN: https://ssrn.com/abstract=1949147 or http://dx.doi.org/10.2139/ssrn.1949147

Jacob Antoon Bikker (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

Onno W. Steenbeek

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

Dept. of Finance, H14-1
P.O. Box 1738
3000 DR Rotterdam, 3000DR
Netherlands
+31-10-4081400 (Phone)
+31-10-4089165 (Fax)

HOME PAGE: http://people.few.eur.nl/steenbeek/

APG All Pensions Group ( email )

Gustav Mahlerplein 3
P.O. Box 75283
1070 AG Amsterdam
Netherlands
+31-20-6049122 (Phone)
+31-20-4059176 (Fax)

HOME PAGE: http://www.apg.nl

Federico Torracchi

Dutch Central Bank (DNB) ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

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