Dutch schemes have 'huge potential' for efficiency through consolidation
NETHERLANDS - Pension funds in the Netherlands can significantly improve their efficiency through consolidation, a comparative study of 90 large pension funds in Holland, the US, Canada and Australia suggested.
The scope for exploiting economies of scale is largest in the Netherlands and the US, despite schemes in these countries already having the lowest costs, according to Jacob Bikker of Dutch pension supervisor De Nederlandsche Bank (DNB), Onno Steenbeek of the Erasmus School of Economics and DNB intern Federico Torracchi.
Bikker pointed out to IPE: “Dutch schemes possibly have larger fixed costs. If these costs are spread over their participants, than the benefits of scale will play a large role.”
They looked into the economies of scale in pension fund administration, administrative costs of service and the complexity of pension arrangements of 90 second pillar schemes in the period 2004-2008.
During their study - commissioned by DNB - they found that administrative costs vary significantly between types of pension funds, with schemes for state and provincial governments having 70% higher costs on average.
In contrast, the costs of teachers’ schemes and mainly non-public sector pension plans tend to be 20% lower on average, the researchers claimed.
However, these differences mainly apply to US pension funds, Bikker said. “Quite a few public schemes in the US seem to be inefficient.”
With €69 and €64 per participant a year on average respectively, Dutch and US schemes have the lowest administrative costs, the survey indicated.
Bikker, Steenbeek and Torracchi attributed the low administrative costs of the surveyed Dutch pension funds to their large scale, a relatively large number of ‘cheaper’ deferred participants, as well as a smaller number of complex pension arrangements.
The operational costs to assets of Dutch schemes were 0.51% in 2008, compared to 0.30% and 1.38% for Australia and Canada respectively.
The study further found that a 1% rise in participants’ numbers leads to a cost increase of 0.75% while, following a 1% increase of both assets and participants, costs will go up by 0.86%, confirming the outcome of other research.
The surveyed pension funds - over 15 Dutch and 49 US schemes - are all subscribed and paying clients of Canadian firm CEM Benchmarking.