Delay to MPF reforms just takes contributors for even bigger ride
with Jake van der Kamp
'Undersecretary for Financial Services and the Treasury Julia Leung Fung-yee cited as the main reason [for the delay] the need to better protect MPF contributors from mis-selling such as occurred in the Lehman Brothers minibonds fiasco.'
SCMP, October 1
It reminds me of the time a few years back when a provincial party heavyweight realised that construction of a bridge from Hong Kong to the western side of the Pearl River Delta might undermine the Shenzhen monopoly on cross-border vehicle licences.
It was not to be tolerated. He therefore got up on his hooves and pronounced that the bridge must not be built because bridges are built on the pylons and these pylons would interfere with the flow of the Pearl River, thus causing water levels in Guangzhou to rise.
'... and we'll all drown.'
No, he didn't quite say that but he wasn't far off doing it.
So Julia Leung proclaims, does she, that the Mandatory Provident Fund reform is being put off in order to better protect MPF contributors? Get that woman some Pearl River pylons. In ripe excuses we have outdone Guangzhou.
What this delay really does is just give the big banks and insurance companies more time to charge you exorbitant fees on the MPF contributions that you are forced by law to turn over to them.
They are on to a good thing. Every month they collect an easy HK$9 billion in contributions, which their clerks then instruct brokers to invest in the market, mostly in boring big old stocks that don't require much effort, for which service you pay them an annual average of 1.9 per cent in fees.
This is far higher than management fees in the free market environment. In fact, some managers charge only notional fees for easily managed money. They get their return from lending the stock out on borrowing programmes that allow traders to short the market. MPF managers also do this, but for them it's just icing on the cake.
Every now and then the rip-off becomes just too stinging, however, and then one of them may announce a cut in fees, from 1.93 per cent to 1.87 per cent, for example. Wow, what largesse!
The reason that they can get away with this is that it is not you, the supposed beneficiary, who chooses your MPF manager, but your employer and it's no skin off his nose if you are robbed. His need is to keep up good relations with his bankers and this is the basis on which he makes the choice of who runs your money. Yes, this is a retirement scheme devised by big finance houses for their own benefit and they cleverly pulled the wool over our government's eyes when they put it together. But they were a bit too clever and one reform finally had to be accepted. It was to give employees the choice of their own MPF managers for their half of the contributions. Employers would keep the choice for their half.
It was a decision made by committee, of course, the back end of a camel sewn on to the front end of a cow, an utterly clumsy arrangement. The employers got it, however, by arguing that they might otherwise be at risk on long-term severance payments. We won't go into the complexities of this one but, take it from me, there wasn't much risk, just a lot of stalling.
Here is the nub of things: the reform that is now to be put off, even meagre as that reform is, cannot possibly put your MPF contributions in greater danger from minibond-style mis-selling. The same set of government-approved fund managers continue to make the choice of where your money will be invested.
Let me repeat this: it is a select group of professional fund managers who manage your MPF money now; it is the same select group that will manage it after the reform. The only difference is that your slightly greater element of choice among them may force them to reduce their fees. You cannot buy minibonds for your MPF portfolio. You don't have that choice. It will only happen if your MPF manager is fool enough to buy them for you and if he was fool enough to do it in the minibond scandal, he will be the same fool now.
Fortunately none of these managers were, or are, such fools. They are robbers, not fools, and they want to stay robbers as long as they can, smacking their lips as they collect their big fat fees from you.
They thus contrived to hoodwink our government again, arguing that the reform should really be put off until a new code of investment manager conduct is put together.
And Julia Leung fell for it, hook, line and sinker plus fishing rod and fisherwoman too.