Prior to the launch of the Mandatory Provident Fund (MPF) in December 2000, only about one-third of the Hong Kong workforce had some form of retirement protection.
By the end of last year, that proportion had increased to almost 90 per cent, with enrolment rates of eligible employers and employees in the MPF close to 100 per cent.
Over those 11 years, members have seen significant growth in their investments. 'The annualised rate of return in this time outperformed the corresponding inflation rate and the one-month Hong Kong dollar deposit rate,' says Darren McShane, executive director (regulation and policy) with the Mandatory Provident Fund Schemes Authority (MPFA).
Despite these achievements, complaints have been voiced about the level of fees charged by MPF providers. The two main categories of charges members face are investment management fees and trustee or administration fees.
Kerry Ching, chairwoman of the Hong Kong Investment Funds Association, representing fund managers, accepts that fees are on the high side when compared with international levels.
'Operating costs in OECD [Organisation for Economic Co-operation and Development] countries range from the very low end to 1.4 per cent, while in non-OECD countries, where the fund sizes are smaller, they range from 1 [per cent] to 5.9 per cent of assets,' Ching says. MPF providers say this disadvantage is because of economies of scale.
'We would expect MPF fees to fall over time as the system matures and gets bigger,' says Michael Huddart, executive vice-president and CEO, Manulife (International). 'In Hong Kong, we are talking about billions of dollars, while in Australia and the US they are talking trillions of dollars invested.'
Competition between MPF providers should also ensure continued downward pressure on fees, and this competition looks set to hot up later this year.
'The proposed launch of Employee Choice Arrangement (ECA) in November would allow members to make their own choice of MPF service providers,' Huddart explains. 'While market competition will be keen, it will be a good opportunity for MPF members to become more conscious of, and take control over, their own contributions, and investments.'
While the MPFA has no statutory power to set fee levels, McShane credits a combination of the urgings of the authority, along with existing market competition, for a fall in charges, even prior to this change.
'The fund expense ratio of MPF funds has dropped 16 per cent in four years - from 2.1 per cent in January 2008 to 1.77 per cent in February 2012,' he says. Thomas Chan Yu-cheong, CEO of BOCI-Prudential, says his company introduced a new MPF scheme just under two years ago. Its lower fees are intended to anticipate the introduction of the ECA. 'The overall charges are below 1 per cent, and range from 0.7 to 0.99 per cent.'
In line with those run by other providers, under the new BOCI-Prudential scheme even lower fees are levied on members whose assets under management exceed HK$250,000. 'In this case the charges come down to 0.6 to 0.89 per cent,' Chan says.
However, Rex Auyeung, president, Asia, for Principal Financial Group, suggests that fee-level is not the only factor to consider when assessing MPF providers. 'Because different providers can produce different investment returns even on similar funds, fees and charges cannot be the only measuring stick. Customer service is also a differentiating factor which could justify a fee difference. Sometimes a customer may not mind paying a bit more if he or she can get better service.'
In terms of the transparency of fees and charges, the MPFA believes there is a comprehensive range of information available to those willing to look.
In 2003, the authority published the Code on Disclosure for MPF Investment Funds. 'This requires simplified fee disclosure through the standardised fee table in all offering documents,' McShane says.
The MPFA has also launched the online Fee Comparative Platform, McShane says, so scheme members can understand, compare and monitor the fees charged by various funds. Print versions of this tool are also available.
Digital technology holds the key to an easier way of disseminating information, Chan says. 'We want to communicate more effectively with our members, so we're investing quite a lot of money in our computer systems and applications for mobile devices, such as the iPhone and iPad.'
The aim is to provide his company's members with information about the performance of their individual investments on a daily basis, and allow them to change their investments via the web and their mobile devices.