Much has been said about the problems with the city's Mandatory Provident Fund scheme - low returns, high management fees, a lack of transparency and investment flexibility. These are the general perceptions of the 2.3 million workers who are compelled by the law to contribute toward their retirement savings. Twelve years have passed since the scheme was started and it's doubtful most people will have enough funds to retire with dignity.
A consultancy report released by the MPF Authority seems to have confirmed the worst fears of workers. According to the study, the rate of net return is just 3.4 per cent a year. However, the fees and administrative costs are the world's highest. Although the fees have come down from 2.1 per cent to 1.74 in recent years, the authority has rightly criticised that the reductions are still unsatisfactory. The consultant warns that the costs are likely to escalate if no action is taken.
For many who routinely put aside account statements when they arrive, the report is a timely reminder for them to pay closer attention. There is a thick layer of fund managers, trustees and custodians taking away a big chunk of one's savings. Of the average 1.74 per cent charged, 0.59 per cent is for investment management. Administrative costs account for 0.75 per cent, while the remaining 0.4 per cent is for trustee profits, rebates, etc. The revelation of these fees has strengthened the argument that better regulation is needed.
The consultant believes management fees could be slashed by as much as HK$1.2 billion a year by adopting measures like electronic payment and consolidating the schemes. It remains to be seen whether workers will get better returns as a result. Some of recommendations involve extra spending, which means it may be transferred back to the customers.
The four proposals put forward by the MPF Authority appear to be worthy of support. These include a fee cap, mandating various types of low-fee funds in each MPF scheme and introducing a not-for-profit operator. They deserve the government's serious consideration.
The report is just the start of a debate on how MPF should be revamped. Unless we get it right, the scheme cannot provide a comfortable retirement life for the ageing workforce. The government also needs to better assure workers that their hard-earned money is not set aside to feed fund managers.