NETHERLANDS – A study by the Dutch pensions regulator De Nederlandsche Bank (DNB) has concluded there is no limit to a pension fund’s scale for cutting administration costs.

Jacob Bikker, an econometrist who looked into data for all Dutch pension funds between 1992 and 2009, found that pension funds’ optimal scale for asset management costs came to approximately €690m.

He concluded, however, that greater scale beyond that did not improve cost effectiveness.

Small and average-sized pension funds have the largest potential for costs saving, he argued.

Bikker said the ideal scale for saving investment costs fluctuated significantly over time, and suggested a link with investments in more complex and risky asset classes, such as hedge funds and private equity, resulting in higher costs.

“And management costs for equity and property are higher than those of fixed income anyway,” he added.

Bikker said he found “huge” differences in administration costs among pension funds of equal size, with company schemes and occupational pension funds incurring significantly higher expenses.

“Even between schemes in the same category, there were significant cost differences, suggesting that pension funds executed their tasks in quite different ways,” he said.

He added that, between 1992 and 2000, pension funds with approximately 40,000 participants had the lowest administration costs, but that subsequently the ideal scale quickly rose to above the scale of the largest schemes.

Last year, following an in-house survey, IPE’s sister publication IPNederland concluded that pension funds with assets of between €5bn and €10bn scored best on returns and coverage ratio.

Small schemes – with assets of up to €150m – performed surprisingly well, whereas pension funds with more than €20bn in returns delivered the worst results, IPN found.

Although the largest schemes had the lowest costs for pension provision, they performed significantly worse on funding and incurred much larger losses during periods of headwind, according IPN.

In addition, their average returns were lower, it said.