Battle on to lure Hong Kong MPF switchers
MPF providers use tactics including ice cream vans and smartphone apps in early skirmishes aimed at increasing their share of the market
Free ice cream, smartphone software applications and reduced fees are weapons the city's 19 Mandatory Provident Fund providers are using to lure HK$257.5 billion in workers' pension contributions.
From today, the city's 2.4 million employees can choose their own pension fund providers, something they have not been able to do since the scheme began 12 years ago. The MPF requires workers and employers to each pay 5 per cent of salary, up to a combined HK$2,500 a month, to MPF schemes run by banks, insurers and fund companies.
Since the MPF was set up in 2000 only employers have been able to choose the providers. Workers unhappy with the fees and services of the providers had to stick with the bosses' choice. This has led to a lack of competitiveness among providers and criticism that fees were too high.
The reform to allow employees to choose their own provider and shift their contribution once a year will make a difference.
Overseas experience shows 10 per cent of workers will opt for a shift in pension providers when they are allowed to do so, which means there may be HK$26 billion worth of assets changing over. This explains why providers are keen on offering incentives, presenting a golden opportunity for smaller players to expand their market share.
"Allowing employees to choose their own providers will add competitive pressure and improve service quality and performance," said Alice Law Shing-mui, executive director of the Mandatory Provident Fund Schemes Authority (MPFA).
To prevent mis-selling, the MPFA has a range of regulations requiring all sales staff to register with it and banning the use of gifts or rebates to induce people to shift schemes. Fee reductions and brand-building gifts are allowed.
Dutch insurer ING's special "brand building" weapon is free ice cream. Since April an ice cream van carrying its logo has been promoting its MPF business and giving away cones to people in Mong Kok, Wan Chai and Causeway Bay.
ING interviewed 503 people and found 6 per cent would definitely change their MPF provider, 42 per cent had not yet decided, 35 per cent would consider changing and only 17 per cent would not change.
Another provider, Bank Consortium Trust (BCT) has launched smartphone apps, telephone hotlines and member briefings.
Chief executive Lau Ka-shi said the firm had 600,000 members and it expected its reduced fees and incentives would increase its share of the market. BCT offers a low-fee scheme charging 0.79 per cent to 0.99 per cent, compared with the market average of 1.74 per cent.
BOCI-Prudential two years ago launched a similar scheme charging between 0.5 per cent and 0.99 per cent.
Bank of East Asia offers a unit bonus from HK$100 to 0.88 per cent of the total transfer-in asset amount for customers who transfer their MPF assets of HK$10,000 or above.
Rex Auyeung, Asia president of Principal Financial, said his firm had about 210,000 customers and he believed the reform would allow that to increase.
"Our success in many internationally known pension markets like the US, Brazil, Chile and Mexico is a testimony to our abilities. We know what it takes to build a strong retirement portfolio," Auyeung said.
Even the biggest providers are feeling the heat.
HSBC, which has a 32 per cent market share, is trying to retain members and attract more.
Alex Chu Wing-yiu, director and head of employee benefits at HSBC Insurance, said HSBC has offered schemes as low as 0.79 per cent.
"It is important for members to look for a holistic provider who is not only competitive on fees but is also financially solid, and has the platform, channels, network, expertise, service capacity and a comprehensive range of products and services that can cater to their needs," Chu said.
Manulife, the second largest provider, is offering fee discounts. It has 4,700 agents selling MPF products.
While ice cream may be a nice treat fees remain the focus of MPF account holders.
Kenny Lee Yiu-sun, chief executive of First China Securities, said he would compare fees of providers. "I would like to have a good comparison platform for me to check the fees of all MPF funds so I can decide who to shift my MPF money to. It does not need to be the lowest but it does need to be reasonable and value for money."