Unpacking the Research: A Closer Look at Global Pension Administration Models
Pension Administration Insights
At our 2023 PABS conference, a discussion among attendees comparing pensions administration costs led to the discovery of striking differences across organizations and regions. The room turned to CEM Benchmarking: what is driving these cost variations?
CEM’s latest research explores the variation in pension administration costs in Canada, the United Kingdom, the United States, and the Netherlands. You can read the full research here.
Standardizing Costs across Regions
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?
To answer this question, we first standardized costs to remove factors outside the control of administrators. After adjusting for purchasing power, cost of living, deferred members and plan maturity, regional differences were still too large to ignore. On a per member basis, DB pension benefit administration was 1.5X, 2.3X, and 2.3X more expensive in the USA, Canada and the Netherlands than in the U.K, respectively.
The figure above illustrates the average pension administration costs by region following each step of the standardization. After converting into a common currency (A->B) and excluding virtually costless inactive members (B->C), cost of living (C->D) and economies of scale (D->E) are about equally important in driving differences in average pension administration cost across regions. Pension maturity (E->F), by contrast, does not account for much of the difference in average cost.
Two Service Culture Models Emerge
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 experiences. 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.
Where the Money Goes: Eight Key Functions
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 centers versus Canada’s emphasis on one-on-one counseling. 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 centers 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, white-glove administrators 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, self-serve administrators in the UK reduce expenses by limiting spending on Contact Centers, Information Technology, and Support services. US administrators span both service models, resulting in a wider range of per-member costs.
Where Each Region Invests: Same Model, Different Priorities
Even within the same service model, administrators prioritize very different services. The Netherlands stands out for exceptional contact center investment—spending 3.5 times more than other regions and achieving significantly lower call abandonment rates. Canada takes a different high-touch approach, investing heavily in one-on-one member counseling with volumes 10 times higher than the Netherlands. UK administrators minimize spending on member-facing services, with counseling volumes barely reaching 1% of Netherlands levels.
High-cost administrators in the Netherlands and Canada spend 4-5 times more than UK peers on information technology and staff support. The Netherlands also incurs much higher governance costs due to additional regulatory layers like the “bestuursbureau” structure. Notably, finance and audit costs remain consistent across all regions at $7-8 per member, suggesting these core functions are service-model agnostic.
American administrators uniquely span both service models, with cost distributions that bridge the gap between UK efficiency and Netherlands/Canada enhancement approaches, particularly evident in IT and support spending patterns.
Conclusion
Our data confirms that modernizing legacy pension systems is no longer optional but necessary. While the optimal path—whether building in-house, partnering with vendors, or a combination—varies, significant customization remains a key factor. Regardless of the approach, pension funds will continue to face challenges related to cost, resources, customization, and the rapid pace of technological change.