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

Abstract

In the discussion papers series the Koopmans Institute publishes results of ongoing research for early dissemination of research results, and to enhance discussion with colleagues.

Is THEREAN OPTIMAL PENSION FUND SIZE? A SCALE‐ECONOMY ANALYSISOF ADMINISTRATIVE COSTS

“…The cost elasticity is higher here than the 0.64 found by Bikker and De Dreu (2009) for the Netherlands over 1992-2004, which means that the extent of scale economies is lower, while the opposite is true when comparing to the 0.76 of Bikker, Steenbeek, and Torracchi (2012) found in a four-country comparison over 2004-2008. 17 The relationship between administrative costs and total participants is concave (coefficient of the squared term is 0.021): scale economies are almost twice as large for the very small pension funds (compared to the 28 percent mean), while they disappear entirely for large pension funds.…”

Effect of fund size on the performance of Australian superannuation funds

“…Consistent with the findings of Bateman and Mitchell () and Bikker et al . (), the analysis in this study demonstrates that larger not‐for‐profit superannuation funds have significantly lower operating expense ratios than smaller not‐for‐profit funds. This finding suggests that larger not‐for‐profit funds make substantial cost savings, by spreading fixed costs associated with administration and IT infrastructure over a larger asset base.…”

“…For larger funds, economies are gained when these fixed costs are spread over more members and a larger asset base. Consistent with this proposition, several studies find evidence of scale economies in pension fund administration (Caswell, ; Mitchell and Andrews, , in the United States; Bateman and Mitchell, , in Australia; Bikker and de Dreu, , in the Netherlands; Bikker et al ., , in a comparison between four countries). Bikker and de Dreu find that economies of scale for administration are not constant but decrease as fund size increases.…”

X-efficiency and Economies of Scale in Pension Fund Administration and Investment

“…Industry funds on average have higher X-efficiency estimates than professional group funds and company funds, and are therefore less expensive to operate, which may reflect the complexity of operating different types of pension funds (Bikker et al, 2012). Pension funds with higher ratios of pensioners and inactive members are on average more X-efficient.…”