bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

helpersCheckIsPostiesArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

moreOnThisArticles

urlAlias

commentCount

authorLocations

authors

corrections

sponsorType

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

additionalInfoBoxes

quizIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

Jake Van Der Kamp

Speculation that Chief Executive Leung Chun-ying was planning to abolish the much criticised offsetting mechanism in the Mandatory Provident Fund was a "misunderstanding," the city's leader said ...
 
SCMP, January 18
It's true. He didn't say "abolish" in his election manifesto. He only said "adopt measures to progressively reduce" and we shall excuse him the split infinitive.
We shall not, however, excuse him of the offence of standing idly by while what is perhaps the most widespread swindle of Hong Kong's working people continues to sap their retirement savings.
Let us lay out the groundwork here as the real scandal is not what it at first seems. The offsetting mechanism in the MPF allows employers to deduct severance payments they may owe their employees from the half of the final MPF retirement payout that is notionally attributable to employer contributions
That's a mouthful. Let's simplify with the example of an employee whose final payout on retirement is HK$100. As both employer and employee have made the same 5 per cent contributions to the employee's investment plan, the employer's attributable share is HK$50.

	Whether invested well or badly, the money continues to roll in every month
If the employer then owes the employee HK$40 in severance payments, he does not have to pay the money. It is already covered, or offset, by his notional HK$50 share of the MPF payout. Only if the severance payment were greater than HK$50 would he have to make up the difference.
Unfair, say a great many people. The employer should not be allowed an offset. Perhaps, but I cannot get hugely worked up about it. The real scandal lies elsewhere.
We start with the fact that the MPF was made deliberately inefficient. Instead of giving every individual an MPF plan that he or she could carry from employer to employer, the scheme was based on signing each employee up to a plan selected by his or her employer.
This cumbersome approach means that an employee gets a new and different MPF account every time he or she changes jobs. Some people have acquired sheaves of them, all small, all requiring separate administration.
Ridiculous as it is to do things this way, it is just fine by employers, who can then expect favours from the banks behind the fund managers to whom they steer MPF accounts. These managers are also happy. They need not compete to attract employees shopping for the best performing plans.
The average annual management fee they charge for MPF accounts is consequently 1.7 per cent, far more than they charge on other funds and more than is charged on pension plans elsewhere.
They also suffer no performance stress with MPF. Whether invested well or badly, the money continues to roll in every month. If it is then used to buy a new issue that the manager would otherwise not buy - well, who is to know that the sponsor of the issue now owes the manager a favour?
But attempts at reform to adopt the obvious solution of employee-based MPF plans have all foundered on the same rock. If we let employees choose their own MPF managers, say employers, then they will choose irresponsible ones and the value of their MPF investment funds will go down. Final MPF payouts may then no longer be great enough to cover our severance pay obligations.
It's utter nonsense, of course. Not only is it a distinct employee tendency to be conservative with pension investments, but the list of MPF fund managers from which they can choose is determined and closely monitored by government.
Yet the obstruction of reform continues. The most that has been done is to allow employees once a year to move their share of their MPF accounts to a manager they choose. The amount that their employers contribute stays where it was. It only makes things more cumbersome.
Let's put some numbers on this. The latest figure for total MPF assets under management is HK$488 billion. If annual management fees were reduced to 1 per cent, and they would drop at least that far with employee choice, 2.6 million employees would be better off to the tune of HK$3.4 billion a year.
That's per year. That takes no account of the performance incentives reform would bring. And that's the real scandal.
jake.vanderkamp@scmp.com


Number of millionaires in Hong Kong MPF doubles; assets hit US$178 billion: MPFA chair

Hong Kong authorities pursue missing MPF payments for staff of Michelin-rated eatery

Hong Kong minister hints at scrapping of MPF tax break proposal for elderly

Hong Kong’s MPF savers achieve first-half returns of HK$24,100 each, research firm says

Mandatory Provident Fund (MPF)

MPF's real swindle is way it is stacked against workers

Illustration: Emilio Rivera

No plans to scrap MPF 'offsetting' mechanism, says Leung Chun-ying

Chief executive Leung Chun-ying poses for the photographers with hard copies of Policy Address 2014 in a press conference. Photo: K. Y. Cheng

Chief executive Leung Chun-ying speaks during a press conference after his second policy address at the Central Government Office. Photo: K. Y. Cheng

Business

Opinion

Comment

Employer-based system, even with fund switch concession, ensures low returns and high fees


Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column

Jake's View

Jake's View | MPF's real swindle is way it is stacked against workers

Employer-based system, even with fund switch concession, ensures low returns and high fees