Low-fee MPF schemes get boost from big contributions

All is not lost for cheap plans after massive switch by employees fails to materialise

PUBLISHED : Tuesday, 26 November, 2013, 3:02am
UPDATED : Tuesday, 26 November, 2013, 3:02am

Reduced Mandatory Provident Fund fees may not attract a massive number of employees to shift their retirement nest egg to another provider, but they do attract fat cheques from some customers.

Three years ago, BOCI-Prudential introduced the cheapest MPF scheme in town. The average fee for its 11 funds stood at 1.03 per cent, against a market average of 1.72 per cent.

Many expected the low-fee scheme to attract a massive number of employees to switch their plans.

This has not happened, however. Three years on, the scheme has only attracted 9,000 employees with assets of HK$600 million.

BOCI-Prudential chief executive Thomas Chan said this was somewhat disappointing. Many employees have opted not to switch their plans because of all the paperwork required.

So far, only about 4 per cent of the 2.4 million employees in the city have opted to switch providers as part of the reform of the pension scheme.

The BOCI-Prudential standard scheme, which charges a slightly higher fee at an average 1.58 per cent, has not lost any members to the lower-fee fund. It still has 700,000 members and assets of HK$38.2 billion.

Many employees have opted not to switch their plans because of the paperwork required

But then the cheap plan is not without merit. Chan said the cheaper MPF scheme had attracted some big contributions, with very big customers voluntarily contributing up to HK$10 million. They like the low fees with a one-off upfront fee of 3 to 5 per cent in addition to an annual fee of about 2 per cent.

Under the MPF scheme, any voluntary contributions can be withdrawn anytime the employees like. But the employees can only withdraw the mandatory contribution portion when they retire at the age of 65. This shows the low-fee MPF funds have the potential to become the new breed of investment vehicles.


Principal sharpens its focus

More on MPF. Principal Financial's Asia chief executive Rex Auyeung said the company wanted to focus on its MPF business, which is why it has decided to close its independent financial advisory firm, PrinCorp Wealth Advisors (Asia).

Principal set up the advisory firm three years ago to sell its own MPF and retail fund products as well as other insurance companies' products. While sales of other companies' products are not taking off, its own MPF business has increased. As such, Auyeung said the group decided to focus on its own MPF and retail product sales.

Those who have bought Principal's products through the advisory firm will not be affected.