MPF reforms bring lower fees but more changes still needed
Government should keep increasing competition and force further cuts in management charges
The Mandatory Provident Fund reforms have celebrated their first birthday but more needs to be done to make the pension scheme that covers 2.4 million employees more competitive.
Since November last year, employees have been allowed to choose the MPF providers for their own contribution instead of the boss deciding. The reform was aimed to increase competition and force fees down.
One year later, statistics shows management fees of 30 per cent of the funds, or 138 funds, have been reduced. The biggest reduction was 44 per cent. This translates into annual fee savings of about HK$250 million.
But more needs to be done. Of the about 450 MPF investment funds, more than 300 still have not yet seen a reduction in fees. And the average fee only went down to 1.72 per cent last month from 1.74 per cent in October last year. The reduction is too small.
The problem is providers are not willing to cut fees as the competitive pressure is not strong enough. Only 89,000 employees, or 3.7 per cent of all MPF pension holders, have opted to shift their providers.
To address this, the government should carry out further reforms to allow staff to freely shift their entire portfolio to any provider. Currently, they can only shift their own contributions while the boss can stay with the existing providers. If the staff have full control of their pension money, providers will be more likely to be forced to compete on fees and services.
Last year, the government said it might consider a cap on fees to bring fees down. We hope it has not forgotten this option. A consultation should be held on this issue.
What is more, as White Collar has always lobbied, the government should stop bosses using MPF contributions to offset long-service or severance payments. This is definitely exploiting the 2.4 million workers under the scheme and the city may well be the only market to allow bosses to dip into their staff's retirement money.
The government has always remained silent on this as it is worried about opposition from the commercial sector if it moves to change the law. But it should protect employees' interests as their MPF accounts could be drained if they were made redundant several times in their career or the companies they work for became insolvent.
The government should take the lead in stopping this.