White Collar

MPF employees should wake up and choose their funds

Around 600,000 in Hong Kong have yet to make a decision on where to invest their MPF money

PUBLISHED : Tuesday, 01 July, 2014, 4:05am
UPDATED : Tuesday, 01 July, 2014, 6:51am

Hong Kong's pension regulator has finally come out with its proposal for a cap on management fees on core funds to serve employees who have not chosen what do with their MPF contributions.

While some commentators want the Mandatory Provident Fund Schemes Authority to go further, capping the fees of other investment funds, White Collar thinks the next step should be a study into why so many employees seemingly take little interest in their MPF investments - and remedy that.

According to the core fund consultation paper released by the regulator last week, 24 per cent of the city's 2.5 million employees - about 600,000 - have never chosen how to invest their pension contributions.

These workers would find themselves in a core fund with a cap on management fees of 0.75 per cent and on total fees of 1 per cent. Investments in these funds would be standardised, limited to index funds, while risk level would be progressively cut as these account holders get older.

On the face of it, the core funds come across as a good idea for this group. But a closer read of the paper reveals that not all such employees are failing to make choices on their MPF simply because they do not know how to do so.

The MPFA said that, according to a survey, 33.5 per cent of respondents fell into this bracket, but 14.6 per cent said they were "too busy", while 11.2 per cent said they relied on the providers' default arrangement.

For a financial centre like Hong Kong, with almost 2 million retail investors and no shortage of morning television programmes devoted to market matters, it is odd that we should have so many people who have absolutely no idea about investment.

Those who know how to invest but give up their rights to choose their MPF investments are losing out.

The 600,000 employees who - for whatever reason - have not have made MPF choices have a total of HK$60 billion invested into the default funds chosen by the providers. They mostly end up with the most conservative options, providing returns of perhaps 1 per cent or so - which can never beat inflation.

Some providers may choose balanced funds as the default choice. But while these funds may offer better returns, the fees are higher.

While the new core funds may be a better option for those who lack investment knowledge, it is time for others who fail to make MPF choices to wake up - not matter how busy they are.

Ultimately, the MPF is their money, and they should do their duty to make the right choices.