OpinionPut a thinking cap on to keep a lid on pension fund fees

When employees were allowed in November last year to begin choosing their own MPF pension providers, many believed it would lead to lower management fees. But, instead, the charges rose last month.

The average management fee for the 543 investment funds under the Mandatory Provident Fund scheme has risen to 1.75 per cent from 1.73 per cent in September, according to data from the Mandatory Provident Fund Schemes Authority.

The increase may not be much, but it comes after the much-publicised change that let employees choose who manage their contributions to the scheme. The change was designed to give workers more freedom and put pressure on providers to cut fees, but it has obviously failed. It just confirms that the government needs to do more to bring fees down and should consider adding a cap.

The MPF is a compulsory pension scheme set up in December 2000 and covers 2.4 million employees. Under the scheme, all employers and employees have to each pay 5 per cent of the staff member's salary - up to a combined total of HK$2,500 a month - to an MPF provider such as a bank or fund company.

And since the employers used to decide the providers, employees could not switch managers of their contributions, even if they were unhappy with the services, fees or performance.

About 30,000 employees, or 1.3 per cent of the total, have switched providers since November. But the numbers are obviously not big enough to drive the 19 providers to cut fees.

Legislator Chan Kin-por, who represents the insurance sector, said it was too early to see whether fees would go down but when more staff chose to switch, the pressure would be on providers.