Lawmakers want government to run MPF low-cost core funds

Government should run low-cost core fund, say legislators, who are wary of providers

PUBLISHED : Tuesday, 08 July, 2014, 1:54am
UPDATED : Tuesday, 08 July, 2014, 4:38am

Lawmakers have strongly criticised the pension regulator for failing to protect employees as they believe the reform proposal for a low-fee core fund option should be run by the government instead of it being handed over to the industry.

"People are angry with the MPF (Mandatory Provident Fund) because the schemes only bring huge profits to the financial industry instead of giving a decent retirement protection to the employees," Chan Yuen-han, legislator for the Federation of Trade Unions, said at the monthly Legislative Council financial affair panel meeting yesterday.

"The fees are high, the performance is not good, and the scheme also allows the boss to use their MPF contribution to offset their severance or long-service fees due an employee.

"To solve the problem, the government should run the low-fee core fund itself as it does not need to chase for profits."

Several other lawmakers echoed her views, but the government thinks differently.

Deputy Secretary for Financial Services and the Treasury Eddie Cheung told lawmakers that a government programme would involve high administrative costs and may not generate good returns.

"The 19 MPF providers have set up the platform to run the MPF. It would be expensive for the government to set up a new system to run the scheme," Cheung said. "The MPF is a privately run scheme and it would not be appropriate for the government to run some of the MPF funds."

The lawmakers are debating the Mandatory Provident Fund Schemes Authority proposal issued last month for all MPF providers from 2016 to introduce a low-fee core funds for employees who do not choose a fund. About 600,000 employees have not given their investment choices and their combined HK$60 billion is invested in default funds, which charge high fees. They account for 24 per cent of all employees.

The regulator suggested the core funds would replace these default funds. The core funds will have a 0.75 per cent cap on fund management fees.

Cheung said this was reasonable as there were only 12 MPF funds charging a fee lower than 0.75 per cent. The 450-plus MPF funds charge an average fee of 1.69 per cent, among the highest in the world. The average fee is 0.83 per cent in the United States.