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  • 2010-15: Economies of Scale and Scope in Australian Superannuation Funds (Working paper)

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    Discussion paper (353.2Kb)
    Author(s)
    Higgs, Helen
    Worthington, Andrew C.
    Griffith University Author(s)
    Higgs, Helen
    Worthington, Andrew C.
    Year published
    2010
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    Abstract
    This paper estimates economies of scale and scope for 200 large Australian superannuation (pension) funds in 2009 using a multiple-output cost function. This is the first and currently only year that certain fund-level information provided in the superannuation annual returns to the Australian Prudential Regulation Authority (APRA) has been deemed non-confidential and made publicly available. Costs are separately defined in terms of investment expenses - including investment, custodian and asset management fees - and operating expenses - comprising management, administration, actuarial, director and trustee fees and charges. ...
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    This paper estimates economies of scale and scope for 200 large Australian superannuation (pension) funds in 2009 using a multiple-output cost function. This is the first and currently only year that certain fund-level information provided in the superannuation annual returns to the Australian Prudential Regulation Authority (APRA) has been deemed non-confidential and made publicly available. Costs are separately defined in terms of investment expenses - including investment, custodian and asset management fees - and operating expenses - comprising management, administration, actuarial, director and trustee fees and charges. Four outputs are specified for each cost: namely, cash flow adjusted net assets, the number of investment options, the proportion of total assets in the default strategy and the five-year rate of return for investment costs, and cash flow adjusted net assets, the number of members, net contribution flows and net rollovers for operating costs. The findings indicate that ray economies of scale hold up to at least 300 percent of current mean output in both investment and operating costs, though product-specific economies of scale hold primarily for assets under management and the number of investment options at relatively high levels of output for investment costs and for rollovers at low levels of output for operating costs. In contrast, there is little evidence that global and product-specific economies of scope prevail in the sector, and this is reflected in the proclivity of many superannuation funds to contract out many aspects of their investments and operations.
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    Copyright Statement
    Copyright © 2010 by author(s). No part of this paper may be reproduced in any form, or stored in a retrieval system, without prior permission of the author(s).
    Note
    Finance
    Subject
    G23 - Pension Funds; Other Private Financial Institutions; Institutional Investors
    D24 - Production; Cost; Capital, Total Factor, and Multifactor Productivity; Capacity
    C21 - Single Equation Models; Single Variables: Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions
    Economies of scale
    Economies of scope
    Cost efficiency
    Superannuation
    Pension funds
    Publication URI
    http://hdl.handle.net/10072/390473
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