Half the battle
Long-awaited changes to the MPF allow employees to pick their own fund provider, but fall well short of giving them full control, writes Nicky Burridge
Hongkongers love to complain about their Mandatory Provident Fund. The government launched the plan in 2000 to address citizens' retirement needs. It implemented a fully free-market solution, handing the fund management and administration to the private sector.
All well and good, and fully in keeping with the city's laissez-faire philosophy. However, the government made people's participation in the plan mandatory and, furthermore, let employers choose the MPF trust and fund manager used by employees. This resulted in bad outcomes for some. A Consumer Council study released on October 15 found that almost half (45 per cent) of MPF funds lost money over the past five years.
MPF fees are also high. In May, consulting firm Ernst & Young issued a report finding that Hong Kong's MPF fees averaged 1.74 per cent per annum, much higher than average charges in pension schemes in Australia (1.21 per cent), Singapore (1.41 per cent) and Britain (1.19 per cent).
Some funds charge very high fees. The AMTD Invesco Target 2048 Retirement Fund involves total yearly charges (fees and expenses) of 4.62 per cent, according to the Mandatory Provident Fund Schemes Authority, a regulator.
The MassMutual MPF Guaranteed Fund involves total expenses of 3.86 per cent.
MPF administration is also unwieldy, as it is managed by 19 different trustees that come attached to the 464 funds involved in the scheme.
People change jobs, and they tend to acquire a new MPF fund with each employer. They leave behind a trail of shut, or preserved, accounts. People lose track of their MPF plans. They don't know where their money is, and because administration is not centralised, they cannot get a single, simple statement of their holdings.