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

Abstract

Administrative costs per participant appear to vary widely across pension funds in different countries. Using unique data on 90 pension funds over the period 2004–2008, this article 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 United States. We find that, except for Canada, large unused economies of scale exist. Higher service quality and more complex pension plans significantly raise costs. Administrative costs vary significantly across pension fund types, with differences amounting to 100 percent.

Sponsor Bias in Pension Fund Administrative Expenses: The Brazilian Experience

“…They also find that retail plans, opened to the general public, have expenses that are 70% higher than plans with employer sponsors. Bikker et al (2012) also apply a model similar to that represented in equation 2, for pension funds in Australia, Canada, the Netherlands, and the United States. Besides using a different set of control variables, they perform panel data analysis, incorporating time dimension to the sample, and using annual values for variables from 2004 to 2008.…”

“…We refer to this difference between public and nonpublic sponsored fund as sponsor bias, which is the point that we aim to investigate deeper in the present study. Abi-Ramia et al (2015), as well as Bikker et al (2012), use panel data analysis on a model similar to equation (2), but for a sample of Brazilian EFPC (closed pension funds), in years 2010 and 2011. Each observation is identified by a fund index and by a time (year) index, as expressed in equation 3, where all variables and parameters follow the same description as in equation (2).…”

“…Consequently it is interesting to find out if there is an optimal pension fund size, as in Bikker (2017). The other goal related to pension fund administrative expenses is concerned with the factors that drive them, as in Bikker, Steenbeek and Torracchi (2012), that investigate the effect of plan characteristics. In this study we develop the second approach, dissecting previous findings.…”

“…There is freedom to move individual accounts from one institution to another (portability). Thus, administrative expenses are less relevant, because participants do not necessarily benefit from low expenses and they can more easily avoid high expenses (Bikker, Steenbeek, & Torracchi, 2012;Bikker, 2017).…”

“…BAR, Rio de Janeiro, v. 15, n. 1, art. 3, e170072, 2018 www.anpad.org.br/bar Bikker et al (2012), for Australia, Canada, the Netherlands, and the United States, and Abi-Ramia, Boueri and Sachsida (2015), for Brazil, have reported a sponsor bias in administrative expenses of closed pension funds. Both studies show evidence that funds with public sponsors (either state-owned companies or local governments) present greater administrative expenses, after controlling for assets, number of participants and fund characteristics.…”