A new paper from the SARB examines the fund design and efficiency of the South African retirement fund industry. The authors find significant economies of scale in the industry with respect to administration costs, particularly for preservation funds and retirement annuities. Interestingly, they suggest pension fund benefit structures are not operating efficiently. Their work also suggests an optimal fund size is around 21 million members (compared to a sample maximum sample size of just 1.6 million and total membership in their sample of 13 million). When looking just at long-term (23-year) funds only, their estimate drops to 300 000.
Unfortunately, the authors do not say anything about the actual average level of fund administrative costs (as percentage of assets or contributions) in South Africa. It is also difficult to find cross-country comparisons of administrative costs for the industry that include South Africa. Rankings by Global Pension Transparency Benchmark have South Africa at 12th globally on costs out of 15 countries.
In future posts I will look at the efficiency and performance of the retirement industry in South Africa, starting with the funds managed by the Public Investment Corporation.