The opening to the pool doesn't need to be very large. In many cases it is more a question of matching the appearance with other plumbing fixtures in the pool and what size pipe you have available. If the run is longer than normal there is more value in using larger pipe sizes.
Normally the pipe is fairly tight in the main hole all the way through the shell. A larger hole is drilled perhaps one inch deep on the water size of the pipe hole to give a reasonable amount of space and surface area for the plaster to adhere, and then the smaller hole is drilled all the way through.
Getting a good plaster to plaster joint on a retrofit is sometimes tricky. The key is to have a fairly vertical and solid, yet slightly rough, edge on the old plaster to connect to.