Government's paper shufflers perfect for tidy MPF accounts
In a review of the scheme on the eve of its 10th anniversary, the Hong Kong Federation of Trade Unions said imperfections in the [Mandatory Provident Fund] system had cost many workers their life savings.
Transferring an MPF account to a new fund trustee, for example, requires such complex procedures that many workers are deterred.
SCMP, October 25
It's a complaint I've heard on several occasions. Bureaucrats just do not understand how fast the ground can shift under your feet in private sector employment. They hold their jobs for life but just one bad year in a private company, or one bad boss, and your job can be gone.
As a result you have a string of past jobs behind you, for each of which your different employer has made MPF contributions on your behalf to the investment manager of his choice (not yours). You now have a sack full of different MPF accounts with different managers, all holding only small sums.
Going through the paperwork arrangements to put them together in one account is a big headache and you may not be able to do it anyway if the paperwork is not absolutely perfect.
Assuming it is perfect, and this is a finger-crossing assumption, you find that the amount of money you have saved in your unified MPF account is less than you expected.
Aside from larcenous annual management fees averaging 1.8 per cent, your MPF managers have the right to sting you with a whole line of other fees and charges, among them a big bite for moving your money into and out of their care. Thus every time your job changes, chomp! You have just left another chunk of your retirement savings with a stranger picked by your immediate past boss without reference to you.
The only reform ever proposed for the system, a committee concoction, will only render this worse. You will have the right to choose your own investment manager for the 5 per cent contribution you make but your employer will continue to pick the one he wants for his 5 per cent.
As I say, made by committee. To address the problem of too many MPF accounts this committee proposed having even more. Even this proposal, however, has now been postponed for reasons so vaguely stated as to suggest that more is hidden than told us.
But the real solution has always been apparent. No institution is better at shuffling paperwork than government. These are the people who know all about putting millions of yellow, pink and blue forms in the right places. They are hopeless in managing money but tops in managing paper.
Let us thus have the government's Mandatory Provident Fund Schemes Authority (MPFA) maintain the accounts. When you get a job you will also get an MPF account with it and you will keep that account when you change jobs. All you will do is give your new employer your ID card number and he will notify the MPFA.
In order to avoid the poor returns of the government-managed Central Provident Fund in Singapore, however, we shall not let the MPFA actually manage the money. That job will go to the professionals in fund management.
Thus you will pick one from a range of approved fund managers for your account and the MPFA will direct your money to that manager, keeping out a prudential eye all the while to ensure that the required MPF investment and reporting standards are met.
It's simple, it's clean, it makes obvious sense, it will hugely simplify MPF administration while at the same time taking advantage of the best investment expertise, and it will introduce a sorely needed element of competition to MPF schemes. Those sky-high fees will come down to earth when you get the choice of whose fees you will pay.
It is unlikely to happen, of course. The bureaucrats involved have shown themselves reluctant to take any real initiative and they particularly face the opposition of the MPF's real beneficiaries - the big banks and insurance companies who are the approved fund managers and who want no one interfering with their lucrative fee arrangements.
It's not just a few journalists who say you are being ripped off on these fees.
Here is what one of the world's top human resources consultants, Mercer, has to say on the subject:
'A crucial factor is that you have limited control over the fees and charges taken out of your contributions, and that is if you are able to determine those fees and charges in the first place. But the effects of this can be the difference between a comfortable retirement and one close to poverty.'
Let me repeat that - 'the difference between a comfortable retirement and one close to poverty'.
Why is our government still stalling?