Electronic pension system for Hong Kong may not lead to lower charges

PUBLISHED : Tuesday, 12 September, 2017, 5:17pm
UPDATED : Tuesday, 12 September, 2017, 10:28pm

I refer to the letter from Cheng Yan-chee of the Mandatory Provident Fund Schemes Authority (“Provident fund system to be simpler, cheaper with launch of eMPF”, September 5), replying to my letter (“Muddled MPF system does not help bosses or employees”, August 28).

It would seem that Mr Cheng and I, and others who have corresponded on the subject, can agree that the MPF scheme should be centrally administered. Having an electronic platform, while in keeping with the times, should not be the only objective. The larger objective should rather be to enable each employee to carry one consolidated account throughout their working life in Hong Kong, while enabling them to have free choice among investment managers – and not just the funds that they offer.

Mr Cheng, in quoting my letter, refers to “a single fund”, but confuses having a choice of investment funds from having one consolidated account. The former concerns investment choice, while the latter concerns administration. I do agree that scheme members “would like to have the simplicity of managing their MPF investment on a single platform”.

While it is correct that each MPF scheme manager does provide a multiple choice of funds from which employees may freely choose, I contest that the employee choice arrangements (ECA) make it easy for employees to choose – or switch from one investment manager to another – because the ease of administration for the employer militates against this.

The assets of the individual scheme members are not easily transferable to another MPF provider, as he states.

The fact that I, as a company CEO, am marketed to by MPF scheme providers rather than the company employees, suggests that the employer choice of the MPF scheme provider is the key driver, which is not the way it should be.

The expense ratio of MPF funds, which he says has fallen to 1.56 per cent, is very high by modern investment management standards (my profession) and will only be driven down when the MPF Schemes Authority facilitates an easier method for employees to choose the investment manager of their MPF scheme consolidated account.

The fact that the new eMPF system is expected to be more efficient and reduce costs will not necessarily translate into a reduced charge to employees, unless there is an open playing field where they can choose among investment managers.

Antony W. Wood, Wan Chai