Rip-off of workers' HK$350b MPF fund continues unabated
There have been calls, for example, to abolish the arrangement allowing MPF benefits derived from employer contributions to be offset against long service or severance payment. This is a contentious issue and any change will require a new policy decision, fresh discussions and amendments to the law.
Anna Wu Hung-yuk,
Chairwoman, Mandatory Provident Fund Schemes Authority
Voices, SCMP, Nov 30
She makes it sound like a minor adjustment, a little tweak of the system, which leaves you thinking that if it is contentious and will require a typhoon of talk plus amendments to the law, well, why not forget about it and target easier reforms.
Actually, it is the key reform to stopping the drain from your pocket of scandalously high MPF fees and charges. They are a rank insult to the almost 2.5 million beneficiaries of the scheme and it only rubs salt into their wounds when, in this same 10th anniversary review of the MPF, Anna Wu says, 'Nothing is more important than ensuring contributions are paid.'
No, you have this the wrong way round, Anna. Employer defaults are only a minor problem now and the system for taking offenders straight to court runs smoothly.
The most important thing is that we allowed banks and insurance companies devise the framework of this retirement scheme and they made it serve themselves before the intended beneficiaries. The big obstacle to making the MPF do what it is supposed to do is now the long service payment offset.
And let's get one more thing straight. The net asset value of MPF funds is now HK$350 billion. That's a lot of money and it represents the savings of working people. Delaying reform with that much money at stake is fast becoming irresponsible.
But back to the long service payment. It predates the MPF and requires employers to credit employees who have served for five years or more with two thirds of their final monthly wage for every year of employment.
You could also say, of course, that this piece of well-intentioned road to hell encourages employers to fire people before they have completed five years of service. But we won't say this even though there have been complaints of it.
When the MPF came along in 1999 employers were allowed to offset these obligations against their MPF contributions of 5 per cent of employee compensation. In other words, they no longer have to pay the long service payment if the invested value of their MPF payments is greater.
Now, change tack. The reason that MPF fees are so high (at 1.8 per cent annually on average far above private schemes) is that the employee beneficiaries are captive. It is their employers who decide what fund managers will manage their MPF funds.
And, of course, most of these fund managers represent banks and insurance companies with whom employers like to keep up good relations. Employers are thus not overly distressed by the high fee structure. It costs them nothing and gains them the goodwill of big financial intermediaries.
But the obvious reform to this bilking of the beneficiaries has long been proposed - let the employee rather than the employer make the choice of fund manager and let him or her stay with that choice from one employer to another.
Not only would this make more sense administratively as a multiplicity of MPF accounts has already become a big headache for people who find themselves changing jobs over time, but it would finally introduce competition to the MPF. Employees would be able to shop among fund managers for the best terms. Fees would fall.
Employers, however, object that their long service payments may be at risk if employees make irresponsible choices of manager and the value of their MPF funds goes below what they are owed on the long service payment.
It's nonsense. In the first place the choice of manager can only be made from a government approved list. It is the same for employers as it is for employees. And what employee would deliberately trash his own retirement savings just so that a small portion of it might be made up from his employer another way? It is an entirely specious argument.
But the bureaucrats bought it. The reform has been undermined. Employees will only be given the choice for their own 5 per cent contributions to the MPF. Employers will continue to make separate choices for the 5 per cent employer contribution. And even this reform has now been stalled.
There goes the prospect of reasonable fees. There goes the prospect of employee portability. There goes the prospect of easing the personal administrative headache. The rip-off continues.
Anna, you have a choice. Either knock this piece of employer nonsense out of the way and get us our reform or, for the sake of your own reputation, get another job.