Providers of Mandatory Provident Fund schemes that fail to attract a sufficient number of clients could be forced out of business. Mandatory Provident Fund Schemes Authority managing director Rafael Hui Si-yan expects many MPF providers with small clienteles to disappear as the pension market becomes more competitive. 'It is inevitable there will be a lot of consolidation in the MPF market,' Mr Hui said. Some predictions are that up to 10 providers could be forced out of business by competition. The authority's executive director, Raymond Tam Wai-man, said some MPF providers had too few clients to be able to achieve an economy of scale. 'These providers may decide to leave the MPF market as they could not continue to run loss-making businesses,' Mr Tam said. 'They might decide to withdraw and sell their portfolios to other providers.' Mr Hui said any providers considering pulling out of the market would have to tread carefully. 'They cannot just say 'goodbye' and tell their clients that they will end their operations tomorrow,' he said. They had to meet their legal obligations to protect their MPF members' interests. Mr Tam suggested those who decided to pull out could find other providers to pick up their business portfolios and members. The authority will monitor any market consolidation to ensure members were not hurt. The MPF came into force yesterday - Hong Kong's first compulsory retirement scheme. It requires the more than 251,000 local companies to set up MPF plans for their two million employees. As of yesterday, 131,000 employers had signed up - representing 54 per cent of the total. More than 1.44 million employees are covered by the plans. Principal International Asia managing director and chief executive Rex Auyeung said the first round of battles among the 20 MPF providers was over. He said employers were unlikely to change their scheme providers within the first year of the scheme. 'Those MPF providers who today have got too little business will find it even harder to expand next year,' he said. 'Those providers may opt to leave the market and sell their portfolios to others. I would not be surprised if some sort of negotiations have been going on already.' He said about 10 providers had less than a 5 per cent share of the market - seen as the minimum necessary to keep them afloat. He believed five providers would leave within the next six months while another five providers could go within 18 months - before the authority charges its fees. It has waived providers' fees for the first two years of the implementation of the scheme. Manulife Provident Funds president Nicholas Crouch said consolidation had already taken place in the overseas pension market and he believed the same would happen in Hong Kong. But he also believed it was more likely providers would merge their back office operations to save costs - rather than selling their business to others. So far 10 providers have announced the results of their MPF sales campaigns. These show the big players dominating the market. HSBC and Hang Seng have signed up more than 600,000 employees, representing about 42 per cent of the total. AIA-JF and BOCI-Prudential rank on a par to achieve the second place, each with 200,000 employees signed up - both with a 14 per cent market share. AIA-JF is the alliance of local largest insurer American International Assurance and Jardine Fleming, while BOCI-Prudential is a joint venture between Bank of China Group and British insurer Prudential Assurance. Canadian insurer Manulife (International) is closing in on the top three with 180,000 employees signed up for a 12.5 per cent market share. These figures show the top four have signed up 82.5 per cent of the market, leaving the remaining 16 providers to split the rest.
