The Impact of Service Models on Pension Administration Costs: A Closer Look

The cost of administering Defined Benefit (DB) pensions varies considerably around the globe, from under £14 per member in the U.K. to over $325 CAD in Canada. How comparable are these costs, and what factors contribute to the difference?  

First, let’s give our definition of pension administration costs. Included are front-office expenses (member transactions and communications, the contact centre, and employer administration and service) and mid-and back-office expenses (governance, finance, IT, major projects, premises, etc.). Costs for administering disability, healthcare, optional and third-party benefits, and Defined Contribution plans are excluded. All investment costs are excluded, as is the time and cost of staff overseeing the investment organization. For example, about half of a CEO’s cost is allocated to pension administration. 

To understand what drives differences in pension administration costs, we first standardized costs to remove factors outside the control of administrators (all costs were converted to USD). Even after standardizing cost per member (see figure below), pension administration was 1.5X, 2.3X, and 2.3X more expensive in the USA, Canada, and the Netherlands than in the U.K. 

The figure above illustrates the average pension administration costs by region following each step of the standardization. After converting into a common currency (USD) and excluding virtually costless inactive members, cost of living and economies of scale are about equally important in driving differences in average pension administration cost across regions. Pension maturity, by contrast, does not account for much of the difference in average cost.  

A deeper dive into the data revealed two distinct service models. In more expensive regions like Canada and the Netherlands, administrators adopt a service excellence model focused on enhanced, high-touch member engagement. In less expensive regions like the United Kingdom and some US areas, administrators prioritize maintaining core services for mission-critical activities through a low-cost, low-touch approach. Neither approach is good or bad. They represent strategic choices made in the best interests of different member groups. 

American administrators interestingly span both service models. Pension administrators in high-cost urban city centres provide enhanced services. All other plans appear to operate like core service providers. 

The choice between core and enhanced service models represents a strategic decision for pension administrators. Even within the same service model, administrators can offer vastly different types of services, as seen with the Netherlands’ focus on contact centres versus Canada’s emphasis on one-on-one counselling. It is important to understand these models and their cost implications. 

To further understand cost drivers, we analyzed pension administration spending across eight distinct activities, from member-facing services like contact centres to back-office functions like IT and governance (see figure below). The patterns reveal how different regional approaches to member service translate into dramatically different cost structures. 

The eight pension administration activities reveal how service models drive spending differences. High-cost, enhanced service providers in Canada and the Netherlands invest significantly more in Governance, IT, and Support functions, spending roughly twice as much on client-facing activities overall. Conversely, low-cost, core service providers in the UK reduce expenses by limiting spending on contact centres, Information Technology, and Support services. US administrators span both service models, resulting in a wider range of per-member costs.

Even within the same service model, administrators prioritize very different services. The Netherlands stands out for exceptional contact centre investment—spending 3.5 times more than other regions and achieving significantly lower call abandonment rates and first contact resolution. Canada takes a different high-touch approach, investing heavily in one-on-one member counselling with volumes 10 times higher than the Netherlands.  

UK administrators minimize spending on member-facing services, focusing on core pension administration activities, like setting up pensions and pension payments. Even so, only 66% of UK plans incept a pension within a month versus 98% and above in Canada and the Netherlands. 

High-cost administrators in the Netherlands and Canada spend 4-5 times more than UK peers on information technology and staff support. Underinvesting in IT and technical debt carries long-term risks. As John Senez, Senior Director, Public Services and Procurement Canada, notes, “Technical debt is a common issue in IT today. CTOs are realizing that the cost of not updating systems can sometimes exceed the costs of modernization itself. Sure, plans can achieve low costs per member by not investing in technical debt, but the bill may come back later.” 

Finally, it is interesting that Dutch plans incur much higher governance costs due to stricter regulation and additional governance structures like the “bestuursbureau”, which provides oversight over the sometimes wholly-owned third-party administrator.  

The cost differences between plans in different regions reflect strategic choices about how pension administrators serve their members. Two distinct models emerged, the low-cost, core service approach which prioritizes operational efficiency, and the “high-cost, enhanced service” approach that invests more in greater member engagement.  

Even within the same service model, administrators make different choices—the Dutch channel resources into contact centres, while Canada emphasizes one-on-one counselling. Both countries prioritize incepting and paying pensions – mission critical. For pension administrators, these are deliberate decisions about service philosophy. Success lies in aligning your cost structure and service approach with your membership and measuring outcomes accordingly—the question isn’t whether your costs are high or low, but whether you’re delivering the service your members need to make better retirement decisions.