Mandatory Provident Fund (MPF)

Hong Kong's pension fund authority considers capping fees amid criticism

Top accounting firm hired to look at ways of reducing costs to savers, as bosses say they are dissatisfied with 'speed and levels' of cuts

PUBLISHED : Friday, 19 October, 2012, 12:00am
UPDATED : Friday, 19 October, 2012, 7:25am

Hong Kong's pension regulator is considering capping the fees of Mandatory Provident Fund providers amid concerns they are charging too much.

Diana Chan Tong Chee-ching, managing director of the Mandatory Provident Fund Schemes Authority, said yesterday the authority had appointed accounting firm Ernst & Young to carry out a study on ways to reduce MPF fees.

Based on the results of the study, the authority will propose a range of measures next month.

"Adding a cap on fees would definitely be one of the options we will consider ," Chan said.

"Hong Kong is a free market. However, if free market competition pressure cannot bring fees down, we have to consider adding a cap."

The authority has not provided details of the cap such as the threshold or what type of funds would be affected. Chan said any proposal would be subject to government decision after a public consultation.

The MPFA is also considering a mandatory requirement for all MPF schemes to have at least one low-fee fund. At present, only 15 of the 39 MPF schemes have provided 21 low-fee funds, collecting 0.7 per cent to 1.23 per cent.

The Consumer Council on Monday released a survey indicating that the management fees of some MPF investment funds are excessively high. The MPF average fee level stood at 1.73 per cent, down from 2.1 per cent in 2008.

"The MPFA is not satisfied with the speed and levels of MPF fee cuts. When the MPF was first set up 12 years ago, the fund size was small so the fees were high.

"Now the MPF has grown to almost HK$400 billion but the fees have not come down much," she said.

"The MPFA shares the view of the Consumer Council there is room for MPF fee reduction.''

The MPF is a compulsory pension scheme established in December 2000. It requires employers and employees to each pay 5 per cent of the staff member's salary - up to a combined total of HK$2,500 a month - to an MPF provider such as a bank or fund company.

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 next month, employees will be able to transfer their contributions to a new provider once a year.

Meanwhile, the MPFA will encourage providers to cut fees by allowing them to use electronic methods to handle members' accounts.

It will also simplify procedures for employees consolidating multiple MPF accounts.