Everyone likes a bargain. And if we extend this truism to the thorny issue of fees for our retirement schemes, then perhaps we should be thankful that our pension regulator is trying to bring in rules to lower MPF fees. But a closer look shows caution is required.
Insiders close to the Mandatory Provident Fund Schemes Authority say the regulator is keen on implementing a rule to require all MPF funds offer at least one low-fee fund.
While White Collar is all for lower MPF fees, and welcomes the regulator's attention on this, a big question mark hangs over the need for one more fund to achieve this.
It is a simple fact that even if there is a low-fee fund, many employees may not choose it.
The MPF scheme, set up in 2000, requires employers and employees to contribute 5 per cent each at up to HK$2,500 a month of the employee's salary. The boss selects the provider while the employee is left to choose how to invest the contribution into different investment funds.
According to statistics from the MPFA, the most popular investment choices are mixed-assets funds that cover stocks and bonds. These funds represent 40 per cent of the allocation of the HK$455.33 billion in MPF assets.
And it is not a cheap choice.
The average fee in this fund class stood at 1.89 per cent of the value of fund assets. In contrast, the average fee of all 549 MPF investment funds is 1.72 per cent.
The second-most popular are stock funds, which account for 37 per cent of all MPF assets. With an average fee of 1.74 per cent, this is also slightly above the average.
The lowest fees are for conservative funds, which invest only in bank deposits. This fund type charges only 0.67 per cent in fees. While this is much cheaper than the average of 1.72 per cent, only 11 per cent of MPF assets are invested in such funds.
It is clear that employees base their MPF selections on expectations of fund performance, rather than chasing the lowest fees.
What is more, the MPF authority - from the scheme's launch in December 2000 - has required that all providers offer capital preservation funds, which have since been renamed conservative funds. These funds have served a role as the low-fee choice in all MPF schemes. So, why bother to add another low-fee fund?
In terms of performance, the low-fee conservative funds have managed a return of only 1 per cent in the 12 years since the MPF was introduced - even failing to beat the 1.4 per cent inflation rate over the same period.
The mixed-assets funds reported a 4.2 per cent return and the stock funds generated 4.6 per cent.
It is a fair bet that another low-fee fund would invest in simple products such as low-risk bonds or deposit only, and would yield similar poor returns to the current crop of low-fee offerings.
Moreover, if the government or the authority places too much emphasis on low-fee funds, employees with no investment knowledge may misconstrue such support as investment advice from the regulator.
With these concerns, it should be clear that any move to require MPF providers to offer another low-fee fund is simply not a good idea - especially since the conservative funds fill that role.
The MPFA would be better served by considering other measures to reduce fees. How about another attempt at imposing a cap on fees?
MPF providers were predictably loud in their opposition to a cap when the MPFA first proposed it. Judging by the noise they made, this may be the most promising area for the regulator to press the issue of lower fees.