Half measure makes another MPF mess

'Under the proposed change, the provider chosen by the employer - which now handles [Mandatory Provident Fund] contributions of both employers and employees - would be required to transfer the employees' money every month to the provider of their choice.

It would be allowed to charge only the actual cost of the transaction, which a source familiar with the situation said should be no more than 'dozens of dollars'.'

SCMP, January 3

Have you heard the one about how our government decided that it wants to side with the international majority, in particular with the mainland, and has thus ruled that from now on we are to drive on the right instead of the left side of the road?

No? Well, in order to ameliorate the immediate impact of the change, it has also been decided that for the first three months this new rule will apply only to goods vehicles.

Passenger cars for these three months will continue on the left side of the road.

Hah-hah-hah, but I'll tell you a better one yet. The Mandatory Provident Funds Scheme Authority wants to make a complete dog's breakfast of your MPF pension money by mixing up the obligations of employers and providers.

This is likely to result in an even bigger mess than the traffic idea.

Let us establish the background here first. The big problem with the MPF is that right from the start our financial institutions pulled the wool over the eyes of the bureaucrats who put the scheme together and thus managed to subvert the MPF before it saw the light of day.

It is your employer, not you, who picks the manager (service provider) of your MPF money and your employer's interests are different from yours. He probably made the choice on the basis of having a banking relationship with that provider and he doesn't want that relationship upset.

He also doesn't particularly care whether your pension money is well managed, as it is no skin off his nose if you are ripped off. This means that the provider he appointed has a virtual lock hold on managing your money, irrespective of how badly the money is managed or how high the fees.

And they are sky high, more than 2 per cent annually in most cases, which is not to mention a range of subsidiary fees and charges that you may not even be aware of. I wish I could tell you what they come to in total for each provider but these people are understandably secretive about their doings.

They have also become too greedy, however. Their rip-offs now stand to deprive you of up to half of the pension that should rightfully be yours when you retire and MPF chairman Henry Fan Hung-ling has had to take notice.

But he has now made a mess of it, too.

His idea was to give you the choice of who should manage your money but he has gone only halfway there.

Your employer's provider will administer the MPF account and the provider of your own choice will manage the money.

Someone has obviously assumed here that it will be an easy thing to achieve a seamless fit between administration and management on the part of two competing firms that would otherwise be at each other's throats.

I know exactly what ease to expect from this interface of intermediaries. It will be identical to the ease of the collisions between goods vehicles and passenger cars on the first day of my new traffic scheme, with those same results.

The obvious solution when this becomes apparent will be to go back to the old way of doing things, pending further study, just as it would be with my traffic scheme. The bureaucrats have had the wool pulled over their eyes again. Why couldn't Mr Fan make the change a complete one? This sort of thing can't be done by half measure.

I particularly find it galling that the 'source familiar with the situation', whom we quoted, said that the extra transaction costs would be only 'dozens of dollars' and, further in our report, that 'we hope the average level of management fee will be cut to about 1.5 per cent, similar to the level in Australia'.

Clearly, this source is not, in fact, familiar with the situation and I think it's about time, boss, that we refuse to quote government officials unless they put their names behind their announcements rather than weasel out of their obligations. If they want to remain as 'source' then give them the phone number of The New York Times.

Dozens of dollars, my thumb, for want of a more apt anatomical expression, and if 1.5 per cent is the average annual management fee in Australia for captive funds sourced automatically and allocated by computer to a line of boring dull old stocks, then I think the government of Australia has a scandal on its hands.

The going management fee for this kind of investment is zero. That's right, nil, null, 0, zero, nothing.

The manager gets his return on the very low costs he incurs by making the securities available for a fee on stock lending programmes to people who want to short the market.

If you don't believe me, ask any forthright fund manager, which means not your MPF robber.

Ripped off again.