Hong Kong chief secretary Carrie Lam promises MPF improvement
City’s No 2 official says government is intensifying efforts to improve the “unpopular” retirement savings scheme
The government will step up efforts to improve Hong Kong’s unpopular Mandatory Provident Fund pension scheme, according to chief secretary Carrie Lam Cheng Yuet-ngor.
Bringing down management fees and allowing employees to freely transfer their money between providers are among the changes being considered for the city’s compulsory retirement fund, Cheng said.
“The MPF launched 15 years ago has total assets of HK$607 billion, which covers all employees in Hong Kong for their retirement protection. However, the scheme has never been popular since its launch,” she added.
Critics have long complained that the MPF charges too much in fees, and only allows employees to choose a provider to invest their own contributions, not those made by their employer.
Cheng said on Wednesday more effort would be made to bring down costs, including the management fee for default investment strategy funds, which are set to be introduced in April next year.
Under reform plans, all MPF providers would need to offer a default investment strategy scheme with a fee cap of 0.75 per cent, which is about half the current average fee of 1.64 per cent. The default funds cover those employees who have not stipulated how their contributions should be invested.
Cheng said the Mandatory Provident Fund Schemes Authority (MPFA) would study the possibility of making the scheme fully portable so that the employees it covers could freely transfer their MPF benefits to a provider of their choice.
She said the government will also take a more active role in negotiating with employers and employees to find a resolution acceptable to all parties to change the so-called offset mechanism. The contentious mechanism allows employers to offset severance and long-term service payments against a the contributions they’ve made to his or her fund.
The total amount of employers’ contributions used in this way over the last 15 years has amounted to HK$30 billion, representing 28 per cent of all the funds withdrawn from the MPF in that time.
“The government is ready to take a more active role to discuss the offset mechanism in a bid to find a solution that could offer protection to the employee while not adding a burden that is too much for the small and medium enterprises. We want to find a solution accepted by both the employers and employees,” said Cheng.
She was speaking on Wednesday at a forum in Hong Kong hosted by the International Organisation of Pension Supervisors. The global body aims to improve private pension systems worldwide, and is hosting the forum in Hong Kong for the first time.
Founded in 2004 with 87 pension regulators as its members, the organisation is responsible for setting regulatory standards for privately run pension schemes.
MPFA chairman David Wong Yau-kar said Hong Kong is not alone in facing the challenge of improving its pension system. The forum has shown that many pension authorities in other markets are also seeking ways to provide adequate savings and keep management fees low.