Employees deserve more control over who manages MPF funds

It was just a small step towards improving the Mandatory Provident Fund (MPF) scheme when Secretary for Financial Services and the Treasury Frederick Ma Si-hang, disclosed last week that the MPF Authority is considering an option to allow employees to choose MPF trustees regarding the accrued benefits derived from their own contributions.

I hope the proposals will increase market competition and drive down the high MPF management fees. For the past few years, high MPF fees have eroded employees' accrued benefits. The ratio of MPF management fees to MPF assets is on average 2.06 per cent while the equivalent ratio in Australia is 1.53 per cent. The concern is that retirement protection for employees is being eaten up by the MPF trustees.

Take, for example, the case where an MPF trustee charges a management fee of 2 per cent on the assets, while an employee makes a monthly contribution of HK$2,000. Suppose the average annual return rate is 5 per cent. He could only receive HK$ 1.85 million after making contributions for 40 years. However, the trustee gets HK$ 1.2 million. The effectiveness of MPF to provide protection for employees' retirement must be greatly enhanced and more competition is needed to bring down trustees' fees.

Under existing legislation, employers can choose MPF trustees while employees only have the right to choose MPF constituent funds provided by MPF trustees. Employees should be allowed to choose MPF trustees. However, given the possible resistance by employers, the government and MPFA came up with a compromise to give employees the right to choose their MPF trustees with respect to the accrued benefits derived from their contributions in a year. This could be further studied as part of the overall process of improving the scheme.

Details of the implementation plan and relevant arrangements need to be clarified as they might cause difficulties for employees, particularly those having more than one MPF account. I hope that the government will come up with a full proposal as soon as possible.

Mandy Tam, legislator and member of the Civic Party