MPF providers cut fees for lowest-risk funds

PUBLISHED : Wednesday, 29 August, 2007, 12:00am
UPDATED : Wednesday, 29 August, 2007, 12:00am

Lower charges for pension plans that need little management

Three of the top five Mandatory Provident Fund providers announced yesterday they were cutting the fees for their most conservative investment option.

The reductions, the first since the MPF was launched in 2000, will affect about 600,000 people who have opted for the providers' capital preservation funds (CPF), which offer the least risk - and the lowest returns - and require the least management.

The pension fund regulator and the Consumer Council, which in the past two months have both called for fee cuts, welcomed the decisions by AIA-JF, Manulife and Bank Consortium Trust, and hoped there would be more to come.

From Saturday AIA-JF, the third-largest pension fund provider, will reduce the fee for its CPF from 1.74 per cent to 1.25 per cent. American International Assurance Company (Trustee) chief executive Peter Crewe said the cut would save employees paying in the maximum HK$1,000 a month a total of HK$22,836 over 20 years.

Mr Crewe said: 'Our review showed customers do not mind paying the fee for stock funds or balanced funds which need active management. Customers, however, do not like the idea of paying a high fee for a simple product like the CPF, which is a money market fund invested mainly in time deposits.'

Of the company's 600,000 customers, about 100,000 have opted for the capital preservation fund.

Mr Crewe said AIA-JF hoped to have four low-fee products among its 17 funds by the end of the year.

Bank Consortium Trust, the fourth-largest provider, will cut its CPF charges from 1.5 per cent to 1.2 per cent from Saturday.

'With the fund size of the MPF increasing, there is now economy of scale to allow fees to be cut to benefit the employees,' said BCT co-founder and director Bernard Chan.

The fund's investment director, Eddie Lam Yat-ming, said a majority of the 500,000 employees in BCT's MPF schemes had part or all their money invested in the CPF, which accounted for about 13 per cent of its portfolio.

Michael Huddart, executive vice-president and general manager of Manulife (International) - the second-largest MPF provider - said it, too, planned to cut the fee for its CPF and would make an announcement soon.

'We are not at this stage expecting to make reductions on other funds,' Mr Huddart said.

The largest MPF provider, HSBC, which has a market share of more than 30 per cent, has yet to decide on any fee cut.

'We don't comment on our competitors' pricing strategy,' a spokesman for HSBC Insurance said. 'Regarding our own fee arrangement, we support the positive and constructive initiatives from the [Mandatory Provident Funds Authority] and believe fees will be driven by the market.'

Authority chairman Henry Fan Hung-ling, who was the first to call for a fee cut two months ago, welcomed yesterday's announcements.

'I am glad to see increased transparency on fees and charges has enabled our free market to work better. I do hope more will follow suit and cut their fees,' Mr Fan said.

Consumer Council chief executive Connie Lau Yin-hing said it was 'good news' that the providers had taken a first step to cut their fees.

Democratic Party vice-chairman Sin Chung-kai, who has called for legislation to allow employees, rather than employers, to choose their MPF providers, said the companies should cut fees on more funds.

He said letting employees choose funds would enhance competition and drive fees down further.