Pension fund efficiency: the impact of scale, governance and plan design
AbstractAdministrative and investment costs per participant appear to vary widely across pension funds. 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. This paper examines the impact of determinants of these costs, such as the size, governance, pension plan design and outsourcing decisions, using data on all Dutch pension funds across the 1992-2004 period, including more than 10,000 observations. We find that economies of scale dominate the strong dispersion in both administrative and investment costs across pension funds. Industry-wide pension funds are significantly more efficient than company funds and other funds. The operating costs of pension funds' defined contribution plans are lower than those of defined benefit plans. Higher shares of pensioners make funds more costly, whereas the reverse is true when relatively many participants are inactive.
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Bibliographic InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 109.
Date of creation: Aug 2006
Date of revision:
Administrative costs; investment costs; economies of scale; pension plan design; governance; defined benefits; defined contribution; outsourcing; reinsurance.;
Find related papers by JEL classification:
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-30 (All new papers)
- NEP-FIN-2006-09-30 (Finance)
- NEP-FMK-2006-09-30 (Financial Markets)
- NEP-PBE-2006-09-30 (Public Economics)
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