The impact of scale, complexity, and service quality on the administrative costs of pension funds: A cross-country comparison

Administrative 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 2004–2008, 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%.