Simpler, cheaper investment option for Hong Kong Mandatory Provident Fund has strong support
Authority says public backs the idea of a 'core fund' with a cap on fees and limited risk
The Mandatory Provident Fund Schemes Authority says a new option intended to make the city's compulsory savings programme simpler and cheaper has overwhelming backing from the public.
The authority hopes to launch the new "core fund" option, revealed by the yesterday, by the end of next year if lawmakers' approve it.
Under the proposal, all 19 MPF scheme operators would have to introduce a so-called core option as a default choice for savers. Fees would be capped at 0.75 per cent of assets under management, while the proportion of a person's assets invested in riskier investments would be set at 40 per cent, then reduced after the age of 50 until 80 per cent of their assets were in low-risk assets by age 65.
The move is intended to help the 600,000 MPF savers out of 2.5 million who use a default option rather than choosing between funds offered by providers. Some HK$575 billion, 10 per cent of total MPF savings, is invested in default funds, but providers have been criticised for charging high fees and putting money into unsuitable, high-risk investments.
"Capping the management fee at 0.75 per cent is just a starting point," said Cheng Yan-chee, an executive director of the authority. "We will study if there is room for further reduction."
All 19 approved MPF providers will have to offer a core fund as the default option.
The authority said more than 80 per cent of the 266 respondents to its consultation last year favoured the core fund. Some 63.2 per cent agreed the management fee should be capped at 0.75 per cent, though investment managers were almost unanimously opposed, saying a cap would reduce the incentive to improve services or innovate.
Investment Funds Association chairman Bruno Lee Kam-wing welcomed the proposal but also voiced concern.
"The cap on fees does pose challenges to the industry, but the industry would … endeavour to work towards the requirements, including … using low-fee passive funds or other products that can help achieve the outcome," he said.
A proposal will be put to the Legislative Council later this year.
Employees and employers each put 5 per cent of a worker's salary into their MPF, up to a maximum of HK$1,500 per month. The scheme has been criticised since its introduction in 2000, not least for high fees and low returns.
