Pension fund efficiency: the impact of scale, governance and plan design
Administrative 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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"An Exploration into Competition and Efficiency in the Dutch Life Insurance Industry,"
DNB Working Papers
047, Netherlands Central Bank, Research Department.
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- Olivia S. Mitchell & Emily S. Andrews, 1981. "Scale economies in private multi-employer pension systems," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 34(4), pages 522-530, July.
- Malhotra, D K & McLeod, Robert W, 1997. "An Empirical Analysis of Mutual Fund Expenses," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(2), pages 175-90, Summer.
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