White Collar | Fragmented market's MPF mergers to be big win for workers
Fewer players in pension fund market should lead to larger economies of scale and lower fees
Consolidation of the fragmented Mandatory Provident Fund market has finally happened and it is going to be good for our employees.
Why is consolidation good? Because we have far too many providers and far too many fund choices in the market. Too many providers, particularly the fact that now most of them only have a market share of less than 5 per cent, has meant they lack economies of scale to cut down fees.
When you have too many providers and each of their funds have several investment options, there are far too many fund choices for employees. There are a total of 480 MPF investment funds under the about 50 MPF schemes run by the 19 providers.
Again, this means many investment funds only have a few people who would choose to invest in them.
The high fee has always been a complaint about the MPF plan since it was set up in 2000. The local fee now stands at an average of 1.69 per cent, much higher in comparison with the average pension fees of 0.6 per cent in Chile, 0.83 per cent in the United States and 1.21 per cent in Australia.
Mergers among smaller players to become bigger would help improve the situation. Last Friday, French insurer AXA said it would sell its MPF and other retirement businesses to Principal Financial Group for HK$2.6 billion. This is the first major merger and the largest takeover in the MPF market in its 14 years.
In 2003, Dao Heng Fund Management transferred the administration of its pension business to Principal, following in the footsteps of DBS Kwong On in 2001 and Eagle Star in 2000. HSBC in 2002 purchased the Pacific Century Insurance MPF portfolio.