CEM Benchmarking Releases New Research on Pension Administration Costs

CEM Benchmarking, a leading provider of data and insights to institutional investors, has released a comprehensive study titled "The Impact of Service Models on Pension Administration Costs: A Global Perspective." This research provides an in-depth analysis of pension administration costs, service levels and models across the United Kingdom, the United States, Canada, and the Netherlands.

4 Key Findings:

1. Normalization of Member Costs by Region:
   • The research identifies, and adjusts for, several factors contributing to cost differences between regions.
   • The six factors include currency, purchasing power, membership composition, local cost of living, economies of scale, and pension maturity.
   • In aggregate, these factors explain 50% of the cost difference between member-level pension administration costs across the geographies analyzed.
2. Global Cost Variations:
   • After standardizing for the factors above, the study finds that regional differences remain significant, with the average pension system outside the U.K. costing twice as much as those within the U.K.
   • The median costs by country are: United Kingdom: £34; United States: $66; Canada: $152; Netherlands: €68.
   • The research shows that the cost of servicing active and retired members is about the same in the U.K., while outside the U.K., administrators spend slightly more on retired members.
3. Activity Costs and Service Levels:
   • The study provides a detailed breakdown of costs across various pension administration activities, including contact centres, transactions and interactions, finance and audit, governance, major projects, IT, and staff support.
   • Differences in activity-level costs are reflected in service level quality and capabilities, with regions like the Netherlands investing heavily in contact centres and governance.
4. Service Models:
   • The study highlights two distinct service models: "high-cost / high-touch" and "low-cost / self-serve".
   • In regions like Canada and the Netherlands, administrators follow a "high-cost / high-touch" model, investing heavily in member services such as superior contact centres and one-on-one counseling.
   • Conversely, the U.K. employ a "low-cost / self-serve" model, focusing on essential activities and minimizing spending on IT and staff support.
   • The U.S., interestingly, has both models where in the “high-cost / high-touch” model is prevalent in large, high cost-of-living urban city centres, whereas the “low-cost / self-serve” model is more common outside of large urban centres.

"We believe CEM has broken ground with this research.” said Rashay Jethalal, CEO of CEM Benchmarking. “For the first time ever, pension systems across four countries can be compared on a comprehensive and like-for-like basis. The analysis gives us insights into the difference in strategic choices made by pension leaders, and the implications on the services and costs. We can separate countries in which more plans aim to demonstrate willingness to pay for higher service, from those where funds prioritize total-plan cost efficiency. Both approaches have their merits."

About CEM Benchmarking: CEM Benchmarking is a Toronto-based firm with over 30 years of experience providing data and insights to institutional investors, globally. With a vast database covering 25+ countries and 10,000+ data sets, CEM Benchmarking is uniquely positioned to provide insights into costs, performance, service levels, and transparency across multiple dimensions.

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For the first time ever, pension systems across four countries can be compared on a comprehensive and like-for-like basis.