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X-efficiency and economies of scale in pension fund administration and investment

Author

Listed:
  • Gosse A.G. Alserda
  • Jacob A. Bikker
  • Fieke S.G. Van Der Lecq

Abstract

Pension funds’ operating costs impair pension benefits, so it is crucial for pension funds to operate at the lowest cost possible. In practice, we observe substantial differences in costs per member for Dutch pension funds, both across and within pension fund size classes. This article presents new estimates of scale economies of pension funds and is the first that also measures pension fund X-inefficiency. We use a unique supervisory data set which distinguishes between administrative and investment costs and apply various approaches and models. Our estimates show large economies of scale for pension fund administrations, but modest diseconomies of scale for investment activities. We also found that many pension funds have substantial X-inefficiencies for both administrative and investment activities. The two kinds of inefficiency differ across types of pension funds. Therefore, most pension funds should be able to improve their cost performance, and hence increase pension benefits.

Suggested Citation

  • Gosse A.G. Alserda & Jacob A. Bikker & Fieke S.G. Van Der Lecq, 2018. "X-efficiency and economies of scale in pension fund administration and investment," Applied Economics, Taylor & Francis Journals, vol. 50(48), pages 5164-5188, October.
    • Handle: RePEc:taf:applec:v:50:y:2018:i:48:p:5164-5188
    DOI: 10.1080/00036846.2018.1486011
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    Cited by:

    1. Ravit Rubinstein-Levi, 2021. "Disadvantaged Employees in the Trap of Defined Contribution Pension Plans," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 55-76.
    2. Alserda, G.A.G. & Steenbeek, O.W. & van der Lecq, S.G., 2017. "The Occurrence and Impact of Pension Fund Discontinuity," ERIM Report Series Research in Management ERS-2017-008-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    3. Paskalis Seran & Usil Sis Sucahyo & Apriani Dorkas Rambu Atahau & Supramono Supramono, 2023. "The Efficiency of Indonesian Pension Funds: A Two-Stage Additive Network DEA Approach," IJFS, MDPI, vol. 11(1), pages 1-19, February.
    4. Andrew Ainsworth & Shumi Akhtar & Adam Corbett & Adrian Lee & Terry Walter, 2024. "Superannuation fees, asset allocation and fund performance," Australian Journal of Management, Australian School of Business, vol. 49(3), pages 340-365, August.
    5. Lu, Shuai & Li, Shouwei, 2023. "Is institutional herding efficient? Evidence from an investment efficiency and informational network perspective," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    6. Jacob A. Bikker & Jeroen J. Meringa, 2022. "Have scale effects on cost margins of pension fund investment portfolios disappeared?," Applied Economics, Taylor & Francis Journals, vol. 54(39), pages 4501-4518, August.
    7. Hlobil, T.M. & van Leuvensteijn, M., 2020. "Combining investment advice and asset management," Economics Letters, Elsevier, vol. 197(C).
    8. Jaap A. Bikker & Michiel van Leuvensteijn & Jeroen Meringa, 2025. "Competition among Dutch pension funds: is there any?," Working Papers 839, DNB.
    9. Cui, Yaolong & Muñoz, Fernando & Vicente, Rut, 2026. "Treasure hunt in emerging markets: Empirical evidence for European pension funds," Research in International Business and Finance, Elsevier, vol. 81(C).
    10. Pascalis Seran & Usil Sis Sucahyo & Apriani Dorkas Rambu Atahau & Supramono Supramono, 2022. "Investigating the Efficiency of Indonesian Employee Pension Funds," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 25(83), pages 74-87, June.

    More about this item

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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