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Mandatory Provident Fund (MPF)

MPF fund fees vary wildly, savers warned

Similar funds charge differently, with even a 1 percentage point variation costing people dear

PUBLISHED : Tuesday, 16 October, 2012, 12:00am
UPDATED : Tuesday, 16 October, 2012, 10:40am

The management fees of some Mandatory Provident Funds are 26 times higher than others, a watchdog's survey shows.

The Consumer Council found huge variations in management fees, with the MPF fund expense ratio (FER) - fees and charges as a percentage of the total fund size - ranging from 0.17 per cent to 4.62 per cent.

The range varied depending on the nature of the investment portfolios.

The study covered 523 funds from 39 MPF schemes offered by 15 companies.

The council says a 1 percentage point difference in fees will have a significant impact on the accrued benefits an employee eventually receives.

For a person contributing HK$2,000 a month to a fund where fees are 1 per cent and there is a 5 per cent average gross investment return, an extra 1 per cent in fees would cut the accrued balance by HK$220,000 over 30 years.

A 3 per cent fee would reduce the accrued benefits by HK$400,000.

The survey found five funds were charging fees of more than 3 per cent.

The level of fees also varied significantly for the same type of fund - particularly in the field of mixed assets and equity funds.

For example, the ratio for mixed asset funds varies from 0.44 per cent to 4.62 per cent - a near tenfold difference.

Lau Ka-shi, managing director and chief executive officer of BCT Financial, a fund trustee and sponsor, said MPF fund fees were based on business decisions and related to the size of the fund's assets.

She said that, despite high fees, some service providers gave bonus units to their customers.

Thomas Chan Yu-cheong, chief executive of BOCI-Prudential, another trustee, advised customers that higher fees were not a surefire sign of better returns.

"No one can guarantee to outperform the market every year," he said.

The Mandatory Provident Fund Schemes Authority says the average ratio has fallen by 18 per cent in four years to a ratio of 1.73 per cent in September.

A separate consultancy study conducted by an industry group, and reported in the council's monthly magazine Choice, found the average level of FER in Hong Kong was 1.74 per cent - higher than in several countries with similar retirement schemes.

Professor Ron Hui Shu-yuen, chairman of the council's community-relations committee, said there was now reason for fee reduction due to the stiffer competition triggered by the soon-to-be-introduced MPF Employee Choice Arrangement.

A major criticism of the MPF scheme has been that employers choose the providers and employees cannot switch even if they are unhappy with the services, fees or performance.

From November, employees will be able to transfer all of their contributions to a new provider of their choice once a year.

But the council warns employees there will be an interim period of six to eight weeks when funds are being transferred, during which their accrued benefits will not be invested in any funds.

Hui said during that period there was a possibility they would miss out on any "sell low, buy high" benefits if the market fluctuated.

The MPF is a compulsory pension scheme established in December 2000. It requires employees to pay in 5 per cent of their salary a month, which is matched by their employer - up to a combined total HK$2,500 a month - to an MPF provider, such as a bank or fund company.