Economies of scale and scope in Australian superannuation (pension) funds

Abstract

This article provides estimates of economies of scale and scope for 200 large Australian superannuation (pension) funds using a multiple-output cost function. We separately define costs in terms of investment expenses - including investment, custodian and asset management fees - and operating expenses - comprising management, administration, actuarial, director and trustee fees/charges. The four investment outputs are cash flow-adjusted net assets, the number of investment options, the proportion of total assets in the default strategy and the 5-year rate of return for investment costs, whereas the four operating outputs are cash flow-adjusted net assets, the number of members, net contribution flows and net rollovers for operating costs. We find that economies of scale hold up to at least 300 per cent of current mean fund output in both investment and operating costs. There is little evidence that economies of scope prevail, generally reflected in the proclivity for many superannuation funds to contract out aspects of both investments and operations.