Administrative fees and costs of mandatory private pensions in transition economies

Abstract

This paper discusses fees and costs of pension companies in transition economies drawing on examples from four countries – Croatia, Hungary, Kazakhstan and Poland – where second pillar pensions have the longest history of implementation. It finds that at current levels, charges are likely to reduce returns on individual account balances by around 1% per annum on average. Exact rates vary by country and company. Fee structures are complex and, generally speaking, poorly understood by consumers. The limited information on costs that is available suggests that, by and large, companies are able to meet their operating costs within a few years after starting operations. There are large sunk costs in setting up business. As a result the industry displays strong economies of scale. Based on the available evidence, the paper estimates fixed costs to be of the order of $35 per account per year (the 95% confidence interval is $21–$49 per account per year). Given costs of this order of magnitude, individual accounts need to be of the order of 4–6% of average wages for the second pillar to be viable i.e. to deliver a return greater than what can be expected from an unchanged first pillar.

Emekli̇li̇k Yatirim Fonlarinin Karakteri̇sti̇k Özelli̇kleri̇ Ve Performansi: Türki̇ye Örneği̇

“…Bu sonuç, kötü performansa sahip fonların yüksek ücretler taşıdığı, iyi performansa sahip fonların ise düşük ücretler taşıdığı şeklinde yorumlanmıştır. Benzer şekilde; Dubronogov ve Murthi (2005) Hırvatistan, Macaristan, Kazakistan ve Polonya için emeklilik yatırım fonu ücretlerinin getirileri azalttığı yönünde bulgular elde etmişlerdir. Baima (2005), Brezilya emeklilik yatırım fonlarının performansı ile fonların maliyetleri ve büyük-lüğü arasında negatif yönlü ilişki elde etmiştir.…”

“…: 2000;Otten ve Bams: 2002;Houge ve Wellman: 2007;Prather vd. : 2004;Dubronogov ve Murthi: 2005). Yapı-lan çalışmalardan elde edilen sonuçlara göre yüksek ücretli yatırım fonları kötü performansa sahip olurken, düşük ücretli fonlar ise daha iyi performansa sahip olmaktadırlar.…”

Management fees: Determinants and influence of legal limits. Evidence from Spanish pension funds

“…The financial literature on pension funds has traditionally focused on the fee-performance relationship, and several studies have shown the negative impact of fees (Blake et al, 2002;Dobronogov and Murthi, 2005;Martí and Matallín, 2008;or Sy and Liu, 2010).…”

How Do Management Fees Affect Retirement Wealth Under Mexico's Personal Retirement Accounts System?

“…By some estimates, AFORE administrative fees have eroded 18% to 23% of total accumulated retirement wealth (Arenas de Mesa & Mesa-Lago, 2006;Calderón-Colín et al, 2008;Christensen, 2007;Corbo, 2004;Dobronogov & Murthi, 2005;Gutierrez et al, 2003;Hastings & TejedaAshton, 2008;James et al, 2001;Kritzer, 2000;Kritzer et al, 2011;Levy, 2008;Martínez & Murcia, 2008;Mesa-Lago, 2002;Mitchell, 1999;Prieto, 2005;Tapia & Yermo, 2008). Levy (2008) shows that from 1998 to 2006, the sum of management fees obtained by the AFOREs was 1.08 times the total contribution ("social quota") of the federal government to the workers.…”

“…Previous studies have found that retirement fund management fees in Mexico are the highest among the Latin-American and Organisation for Economic Co-operation and Development countries, eroding from 18% to 23% of the total accumulated retirement benefits (see Dobronogov & Murthi, 2005;James, Smalhout, & Vittas, 2001;Kritzer, 2000;Kritzer, Kay, & Sinha, 2011).…”