The Impact of Scale, Complexity, and Service Quality on the Administrative Costs of Pension Funds: A Cross-Country Comparison
AbstractAdministrative costs per participant appear to vary widely across pension funds in different countries. These costs are important because they reduce the rate of return on the investments of pension funds, and consequently raise the cost of retirement security. Using unique data on 90 pension funds over the period 2004Ã¢â¬â2008, this paper 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 US. We find that, except for Canada, large unused economies of scale exist. Analyses on a disaggregated level confirm economies of scale for small and medium pension funds. Even though the pension funds in the sample are among the largest in the world, further cost savings appear to be possible. Higher service quality and more complex pension plans significantly raise costs, whereas offering only one pension plan reduces costs, as does a relatively large share of deferred (or sleeping) participants. Administrative costs vary significantly across pension fund types, with differences amounting to 100%.
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Bibliographic InfoArticle provided by The American Risk and Insurance Association in its journal The Journal of Risk and Insurance.
Volume (Year): 79 (2012)
Issue (Month): 2 (06)
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Web page: http://www.wiley.com/bw/journal.asp?ref=0022-4367&site=1
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Other versions of this item:
- J.A. Bikker & O.W. Steenbeek & F. Torracchi, 2010. "The impact of scale, complexity, and service quality on the administrative costs of pension funds: A cross-country comparison," Working Papers 10-15, Utrecht School of Economics.
- Jacob Bikker & Onno Steenbeek & Federico Torracchi, 2010. "The impact of scale, complexity, and service quality on the administrative costs of pension funds: A cross-country comparison," DNB Working Papers 258, Netherlands Central Bank, Research Department.
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
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- Jakob Bikker & Thijs Knaap & Ward Romp, 2011.
"Real Pension Rights as a Control Mechanism for Pension Fund Solvency,"
DNB Working Papers
311, Netherlands Central Bank, Research Department.
- J.A. Bikker & T. Knaap & W.E. Romp, 2011. "Real Pension Rights as a Control Mechanism for Pension Fund Solvency," Working Papers 11-15, Utrecht School of Economics.
- Brière, Marie & Boon, Ling-Ni & Rigot, Sandra, 2014. "Does Regulation Matter? Riskiness and Procyclicality of Pension Asset Allocation," Economics Papers from University Paris Dauphine 123456789/13624, Paris Dauphine University.
- Jacob A. Bikker, 2013.
"Is there an optimal pension fund size? A scale-economy analysis of administrative and investment costs,"
13-06, Utrecht School of Economics.
- Jacob Bikker, 2013. "Is there an optimal pension fund size? A scale-economy analysis of administrative and investment costs," DNB Working Papers 376, Netherlands Central Bank, Research Department.
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