Over the past few years, several pension funds in Europe have opted to spin off their administrative department into a separate pensions services company. But such moves are not about creating new profit centres - they are seen as freeing the operations up to focus on their main activity and take on other clients to win economies of scale.

In 2001, Mn Services formally split its direct relationship with the NLG Dutch metalworking, pipe, mechanical and automotive trades (BPMT), and began to marketing its pension management services to third party institutions.

“Outsourcing their administration yields mainly efficiency gains for pension funds,” says Rudolf Hagendijk, chairman of Mn Services’ executive board. “It also frees management to focus on its primary function of formulating policy and leave implementation to experts.”

Since it split from BPMT, Mn Service now has a number of other pension funds as clients. Assets under management have grown to 32bn at the end of 2005 from 18bn at the end of 2002. In 2005, it made 1.6m payments, says Hagendijk. “Mn Services is the fastest-growing asset manager in the Netherlands for institutional investors,” he says.

Although cost is not the main reason for choosing to outsource administration, it is an important factor in a pension fund’s decision, he says.”Rapidly changing regulations and growing regulatory pressures are making it more expensive for pension funds to operate. Communication is also becoming increasingly important and good communication costs money.” It is mainly smaller company pension funds that can benefit from outsourcing, he says, although he adds that it can also be the answer for larger funds. They may be going through similar difficulties in managing professional staff such as actuaries, pension experts and investment experts, he says.

Netherlands pensions administrator Blue Sky Group was originally part of Dutch airline KLM, but was later spun off from the company and now manages pensions for other companies besides KLM.

The company decided to turn the activities that became Blue Sky Group into an independent company focusing solely on asset and pensions management in order to improve the service, says Toine van der Stee, managing director of Blue Sky.

Pensions management services can include asset management and fiduciary management. “We have a number of clients for whom we do everything, or just the administration,” he says. “Most of our value-added is in an integrated service.” Every pension fund can benefit from outsourcing, no matter what the size, he says. “It’s basically the striving for quality, professionalism and continuity.”

Pension funds in the Netherlands have been outsourcing asset management for nearly a quarter of a century, he says, and they have also used actuaries and accountants for a long time. Outsourced pensions administration has come more recently.

“Pension funds are finding that managing these different parties is a job in itself, says van der Stee. “So they’re looking for other ways of supporting the trustees in directing all these services. It’s becoming very complicated to maintain the oversight, and they are very aware of their responsibility.”

In Denmark, pensions group PKA created Forca in 2006 to handle daily operations of the partnership between the eight PKA funds, the Paedergogernes Pensionskasse/PBU and Laerernes Pension. Forca now undertakes member services, finances, IT operations and development as well as actuarial services for the funds.

In a member-owned scheme such as those involved in Forca, the only way to use the resulting reduction in costs, or the profit, is to give them back to members, says Peter Damgaard Jensen, CEO of PKA and chairman of the board of Forca.

“Increased efficiency means lower costs, better service, new products etc, and the members are the only target for such results,” he says. And PKA hopes that Forca will yield a profit for its owners, for example, if it manages to attract new customers, he says.

“We have a very good example with Dan-Ejendomme, which has become a great success and has made very attractive returns over the years,” he says.

Dan-Ejendomme was established by the eight PKA pensions funds back in 1989 based on PKA’s own real estate administration. Since then it has grown to become Denmark’s largest real estate handling company - a listed company which is 80% owned by PKA funds. “It is a very good business case: increased efficiency, business expansion, high returns,” he says.