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

Authors

  • Jacob A. Bikker,

    1. Jacob A. Bikker is with De Nederlandsche Bank (DNB), Supervisory Policy Division, Strategy Department, and Utrecht University, Utrecht School of Economics. Onno W. Steenbeek is at the Erasmus School of Economics, Rotterdam, and All Pensions Group (APG), ALM and Risk Policy Department. Federico Torracchi was with De Nederlandsche Bank, Supervisory Policy Division, Strategy Department during this research project. Jacob A. Bikker can be contacted via e-mail: j.a.bikker@dnb.nl.
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  • Onno W. Steenbeek,

    1. Jacob A. Bikker is with De Nederlandsche Bank (DNB), Supervisory Policy Division, Strategy Department, and Utrecht University, Utrecht School of Economics. Onno W. Steenbeek is at the Erasmus School of Economics, Rotterdam, and All Pensions Group (APG), ALM and Risk Policy Department. Federico Torracchi was with De Nederlandsche Bank, Supervisory Policy Division, Strategy Department during this research project. Jacob A. Bikker can be contacted via e-mail: j.a.bikker@dnb.nl.
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  • Federico Torracchi

    1. Jacob A. Bikker is with De Nederlandsche Bank (DNB), Supervisory Policy Division, Strategy Department, and Utrecht University, Utrecht School of Economics. Onno W. Steenbeek is at the Erasmus School of Economics, Rotterdam, and All Pensions Group (APG), ALM and Risk Policy Department. Federico Torracchi was with De Nederlandsche Bank, Supervisory Policy Division, Strategy Department during this research project. Jacob A. Bikker can be contacted via e-mail: j.a.bikker@dnb.nl.
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  • The authors are grateful to CEM Benchmarking, Inc., for providing the data, Jack Bekooij for excellent research assistance, and participants of the research lunch seminars of DNB (May 6, 2010), the Annual Netspar Pension Workshop, Zurich (June 10–11, 2010), the National Business and Economics Society 10th Annual Conference, Curacao (March 9–12, 2011), the Superannuation and Pension Funds Summit, Santpoort (March 31–April 2, 2011), the Western Economic Association International Bi-Annual Pacific Rim Conference, Brisbane, Australia (April 26–29, 2011), and the ICPM May 2011 Discussion Forum, Rotman International Centre for Pension Management, University of Toronto, Toronto (May 16–18, 2011). The views expressed in this article are personal and do not necessarily reflect those of APG or DNB.

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.

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