MPF looks to go digital
More consolidation likely, authority chairman says
Hong Kong’s Mandatory Provident Fund (MPF) retirement savings scheme is looking to go electronic to cut administration costs and speed up service delivery, Mandatory Provident Fund Schemes Authority (MPFA) chairman David Wong Yau-kar said.
“We are now studying how to have eMPF, using more digital and electronic methods to manage the pension system,” he said. “This would increase the transparency of the scheme, cut operating costs and boost efficiency.”
Launched in 2000, the MPF covers 2.5 million employees and 300,000 self-employed people.
But while many people use the internet and mobile phones to handle their bank accounts, the MPF scheme still involves the use of a lot of paper forms and many employers and employees still use manual methods to check accounts and transfer money. The 15 MPF providers handle some 200,000 paper documents related to the scheme every day.
Wong said eMPF would allow members of the scheme to easily check their account information via their computers or mobile phones.
If the scheme could become paperless, it would also cut down on manual input cost and reduce human input errors, and hence reduce overall operating costs for the MPF scheme, Wong said.
Wong said the first phrase of study of eMPF had been completed and the authority was now working on more details of the plan. No launch date has been set.
The government has come under pressure to reform the MPF scheme, which has been criticised for its high fees and low performance.
Lawmakers will vote this month on a core fund reform plan which, if passed, will require all 15 providers to provide a core fund with a fee capped at 0.75 per cent as the default arrangement for the some 600,000 employees who do not choose how to invest their funds in the scheme.
MPF funds fees currently average 1.65 per cent.
“I do not think we would need to put a cap on all types of MPF funds,” Wong said. “After we have a low-fee core funds choice for employees, it would encourage other providers to keep the other fees down.
“Some funds may carry a higher level of fee but they may be actively managed funds. It would be up to the employees to choose how to invest their MPF among different fund choices with different fee levels and performance.”
The MPF sector has seen several acquisitions including Manulife buying Standard Chartered Bank’s MPF business and Principal’s takeover of AXA’s pension portfolio in Hong Kong.
Wong said that after the core fund reform was implemented, there could be more consolidation in the MPF market.
“If the MPF providers are too small and do not have large economies of scale, they may decide to sell their business to other providers,” he said.
He said that in Chile, which had a retirement savings scheme similar to the MPF but with a much bigger pension fund asset, there were only has six providers compared with the 15 in Hong Kong.
“The consolidation may help to bring in a better economies of scale for the MPF providers, and hence increase the efficiency of the market,” he said.