The Mandatory Provident Fund (MPF) is a compulsory pension fund designed by the Hong Kong government as a major protection scheme for the aged and retired residents. Most employees and their employers are required to contribute monthly. A 2012 study by the Consumer Council shows that almost half of the MPF funds have posted losses in each of the past five years.
Haitong's lower fees a small step in right direction for retirement fund
Among the many flaws of the Mandatory Provident Fund that critics have pointed out, the one that is the most detrimental to retirement savings is the high fees and charges that funds levy on customers. At the current market average of 1.71 per cent, such charges amount to an astronomical cost over the course of a working life. Despite repeat complaints from the government, the MPF Schemes Authority and labour groups over many years, most fund fees have stayed unjustifiably high, both in absolute terms and when compared to similar charges in other developed economies.
Enabling workers to choose their own funds with their portions of the accounts to which they contribute gives them more choices. But that still does not generate enough pressure on funds to lower their fees. It is clear that only greater market competition could do that.
So the announcement by Haitong International, the Hong Kong arm of a large mainland securities fund, to waive investment management fees for three years is a welcome development, though clients still have to pay trustee and administrative charges.
The latest news would certainly be a positive development if it sparks a price war among other funds to lower their fees. However, Haitong only has a tiny market share of the total MPF fund pool. It won't disclose it, but according to data company Gadbury Group, Haitong had a market share of only 0.071 per cent at the end of last year - the lowest of all providers - with about HK$364 million of MPF assets under management.
Given its small size, bigger funds may not feel the same pressure to lower fees than they would otherwise with a major competitor. Employers also prefer funds with a long track record and sizeable assets under management.
So it remains to be seen how big a challenge Haitong's fee waiver will be to the rest of the industry, which has enjoyed a bonanza from the charges they have levied over the past decade.
Haitong deserves praise for having the gumption to throw down the gauntlet to an industry that has proved to be remarkably resistant to public pressure. It would certainly benefit workers if more funds follow its example by lowering fees to a more reasonable level. But we are still a long way from a time when workers can sleep easy knowing their retirement investments are in good - and fair - hands.