Originally totally ill-conceived, MPF is now just one big rip-off
A decision on Hong Kong's proposed minimum hourly wage will help guide changes to mandatory retirement savings contributions ... After its first 10 years, adjustments to the MPF scheme ... are being considered.
SCMP, May 12
You know the line about 'can't see the forest for the trees'. Unfortunately, it connotes too widespread a view of things to fit the circumstances here. We might better speak of not even being able to see the tree for looking at a single molecule of wood.
The change to which the excerpt above refers is a possible slight increase of the minimum wage threshold for Mandatory Provident Fund contributions in the event that a minimum wage law should be passed. Big change indeed. Did you know that this and a HK$5 credit on your Octopus card will get you a HK$5 ride on the bus?
And now let us talk about the forest. The bureaucrats who conceived the MPF scheme 10 years ago unfortunately had the wool pulled over their eyes by the banks they consulted about how to put the scheme together.
In fact, independent analyst David Webb once calculated on his Webb-site.com that this particular incident of blindness could cost the average MPF beneficiary 55 per cent of his or her retirement benefits over a career's contributions.
You would think the logical way to set up a retirement scheme like the MPF is to open an account for each working member of the population, leaving it to that person to decide which approved fund manager should manage his or her account and letting that person carry the account to any new employer. After all, it is the employee, not the employer, who is the intended beneficiary. Surely a retirement scheme should be employee-centred in that case. Surely not. The banks convinced the MPF Authority to make it an employer-centred scheme instead. Employees must sign up for the MPF schemes that their employers select. The banks had good self-centred reasons for talking the MPF authority into this. Pleadings of great empathy for their employees to the contrary, most employers think it more important to keep up their relationships with their bankers than to worry about whether their employees have sufficient resources for a comfortable retirement.
Thus, if you are an employer and your principal banker also happens to be an MPF manager, well, that's an obvious choice for the MPF manager you pick for your employees, isn't it?
And if this MPF manager then happens to charge these employees a management fee of a whopping 2 per cent a year among a host of other charges and stings, well, that's water off your duck's back isn't it? You as employer are not paying it and your credit lines with your bank are doing just fine. Are you your brother's keeper?
Here is a list of the 'other expenses' that my own MPF manager expects me to carry:
Safe custody and bank charges
Regulatory registration fees
Handling fees to Trustee
Legal and professional fees
Printing and postage
Establishments costs (what are these?)
MPF indemnity insurance premium
Compensation fund levy to MPF Authority
Other expenses (you mean this list isn't exhaustive?)
And now guess what this manager does for the basic management fee I pay him. Simple. He takes my contributions every month, yawns, and tells his brokers to buy more Hutch, bank and a few more easy big stocks. He then lends these stocks out again on securities lending programmes to people who want to short them, for which he collects another fat fee. Who wouldn't be an MPF manager?
Okay, I admit that the MPF Authority has finally realised how it was, as the saying has it, legged over on the original structure of the scheme. But its response has been to propose making an even bigger mess of things - the employer will pick a manager for one half of the contributions and the employee will pick a manager for the other half.
This one is certainly a solution devised by a committee. And here is an even bigger laugh. The authority says that giving the choice entirely to the employee will be administratively difficult.
Yes, it would be ... in the days that the abacus ruled, although even then the other choices (employer or half and half) would be even more difficult. Someone hasn't been around for the invention of the computer, however. Here is the solution, fellas - you buy the software. Oh, and I didn't tell you the other salient fact about the authority's half-and-half scheme. This idea is now more than two years old and it still has gone no further than the suggestion stage. Someone is in a real hurry here, I see. You're being ripped off, folks.