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Economies of Scale and Pension Fund Plans: Evidence from South Africa

Working Paper 214
Albert Touna Mama, Neryvia Pillay and Johannes W. Fedderke
Publication date: 
April, 2011

The focus of this paper is on the presence of economies of scale in administering pension funds. We make use of a unique dataset with extensive information on South African retirement funds from 1996 to 2006. For almost fifty years now, South Africa has operated under a system with small social security bene…ts but with considerable options and freedom to long-term savers. The dataset contains aggregate information for various fund types, fund classes, as well as different benefit structures. Estimates of a translog cost function provide evidence of unused economies of scale in the industry. We also find that established funds have a substantial cost-advantage over young funds.

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