Giving workers full choice over MPF only solution
Supervising agency appears to be working against the public with limited reforms on how employees can manage pension contributions
"Purely relying on market forces to set fee levels may not be enough. More needs to be done."
Anna Wu Hung-yuk, MPF Schemes Authority chairwoman
SCMP, November 27
Anna, the whole point about the Mandatory Provident Fund scandal is that the MPF never at any time relied on market forces to set fee levels.
Right from the beginning people were denied the right to make the key choice themselves. That is why fund managers have always been able to rob them on MPF management fees. What is more, your latest reforms recognise the problem but do not address it.
Let's review this. When the MPF was established in 1998 it was decided (wisely) not to follow Singapore's example in putting the management of retirement funds into the hands of a government agency. Best let investment professionals run the money.
The question then became one of who should appoint the investment professionals for individual retirement schemes and this time the wrong decision was made.
It was decided to give that choice to employers rather than to their employees. This was wrong decision because employers do not have the interests of their employees at heart quite as strongly as those employees do themselves.
Employers, however, do find it convenient to have good relations with commercial banks and other financiers. These were the very people, it turns out, who put up their hands to manage MPF funds.
The obvious You-scratch-my-back-and-I'll-scratch-yours deal is, of course, an unseemly one and rarely has it been disclosed. The results, however, are fully apparent. The performance of MPF funds has generally been mediocre but the management fees charged for this performance have always been at thievery levels and the employees can do nothing about it. They are captive to their employers' choices of manager.
The supervising government agency, the MPF Schemes Authority, knows this and makes two excuses for allowing it to continue, both of them very weak.
The first is that giving employees the choice would be administratively clumsy. The reverse is actually true. At present an employee must carry as many different MPF schemes as he or she has had employers since the MPF began. It would be administratively much simpler for an employee to carry one MPF scheme from employer to employer.
The second excuse is that employers are entitled to set off their half of MPF contributions against their obligations to make long-term severance payments and are worried that MPF money might be invested badly with employee choice.
It's nonsense. People do not deliberately destroy their own retirement savings. In any case, employees would not invest the money themselves but would choose professional managers from the same approved list given to their employers.
To take account of the continuing criticism, however, the authority has made a pretence of reform. It will now allow employees to choose their own managers for their half of the contributions but only once a year for the contributions made that year. The rest will stay with the employer's choice of manager.
It's purely a pretence of reform because this limitation is obviously a severe one in itself, leave alone the administrative obstacles placed in the way of the employee. The authority clearly does not want people to make this choice and has gone to some lengths to make sure they decline it, including urging them in public advertisements against it.
Why? Why does an agency of the public take this stand against the public's interests? I simply don't understand it.
We had further unworkable ideas from the authority this past week, such as allowing trade unions to manage MPF money. Fine idea, except that we have no real trade unions in Hong Kong and the protest groups that masquerade as unions could never work up the necessary expertise.
Similarly, the ideas of putting a cap on fees and setting up a special low fee fund do not address the basic problem. Both are only prescriptions for poorer fund performance under the present employer choice arrangement. Fund managers will still have no incentive to compete for MPF business except through serving the other financial interests of employers.
Anna, the only real solution to the problem is full employee choice and I think you know it.