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

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.

Disadvantaged Employees in the Trap of Defined Contribution Pension Plans

“…Moreover, the selected pension fund will be large due to the entry of all disadvantaged employees, and a larger plan size is associated with better performance of the entire pension plan portfolio (Dyck and Pomorski, 2011). The tender will enable a significant reduction in management fees due to the bargaining power of the government pension-unionizing entity vis-à-vis the pension funds, that can offer low management fees thanks to large economies of scale for pension fund administrations and lower expense ratios for large funds that decrease as funds get larger 4 (Elton et al, 2012;Bikker, 2015;Alserda et al, 2018;.…”

The Occurrence and Impact of Pension Fund Discontinuity

“…The possibility of a discontinuity event decreases the value of risk sharing for pension funds. In practice, pension funds discontinue on a regular basis (Alserda et al, 2017;Bikker and De Dreu, 2009). For example, over the period 2005-2015, more than half of Dutch, Danish, and British pension funds discontinued (OECD, 2015).…”

“…Pension capital is invested for 40% in equity and for 60% in fixed income over the entire lifespan 4 , with a duration of 16 years. Costs are equal to $10 per member and 0.3% of assets (based onAlserda et al (2017)). Contributions and asset returns are added to pension capital (i.e., total assets) while costs and benefits are deducted.…”