Time for Hong Kong to start over with a simpler, cost efficient MPF
There were good reasons for giving employers the right to choose Mandatory Provident Schemes for their employees when the MPF system was set up in 2000.
This arrangement was administratively simpler and more cost-efficient, and facilitated the efficient launch of the system back then
Chang Yan-chee, MPF
Letter to the editor,
Let us consider what has always been the simplest and most cost-efficient way of setting up the MPF.
What we would do is establish a central government registry that would keep all the records and act as supervisor. We would then vet the fund managers who wish to participate in the scheme and give each employee beneficiary the choice of his or her fund manager from the approved list.
Each beneficiary could then carry his or her MPF account from one employer to another and never notice a change in the regular statements. The fund manager would just collect from one employer instead of another, the government supervisory agency would take note and for each worker there would remain only one MPF account throughout his or her career.
If the beneficiary then believes his or her fund manager is incompetent or charges too high a fee, he or she could notify the supervisory agency to transfer the account to a different fund manager.
It is simple and it combines the best of what the public sector does with the best of what the private sector does. The public sector would maintain and supervise the paperwork, its big strength, and the private sector would make the investment choices, which is what it specialises in doing.
But now consider what actually happens. The employer, not the employee, has the choice of fund manager and all the records are kept with that fund manager. Thus when the employee takes a new job he or she must set up a new account, leaving the one with the previous employer moribund.
Ludicrous as it seems, and truly is, you will have as many MPF accounts when you retire as you have had employers during your working career, each account carrying its own mountain of paperwork, however tiny the amount invested, and over each of which you must keep track.
And if you happen to think that your fund manager for any of these accounts is a thieving fool (some will certainly be), there is nothing you can do about it. You had no say in the choice. It was made by your employers although they never had, do not have, and never will have anything at stake in it.
And do these MPF people now wish to tell me that this is the simpler and more cost efficient way of doing things?
How does one say “Give me a break” in language that a bureaucrat can understand?
I shall accept that it facilitated the launch of the system in 1999, facilitated for the government that is. Rather than shoulder the task of creating one administrative system, it ducked the job by making each participating fund manager create a separate one.
And they call this simple and cost efficient?
But the fund managers did not mind. They rubbed their hands at the prospect. They knew that employers would not stop them from taking the easy, lazy route on MPF investments and, of more importance, would not balk at high fees.
So it turned out. The average administrative fee is still 1.56 per cent a year, not including brokerage and other costs. This is almost 10 times what is charged by big international mutual funds that have marketing and redemption costs to cover, which MPF managers do not.
The government’s MPF people know it. As their latest apologist conceded in his letter to the editor, “But the fee level ... is still high and the MPF Authority is keenly aware of it.”
As an excuse for doing little about this he then cited the Default Investment Strategy a fancy name for a sticking plaster solution for a symptom of the underlying failings of the system.
At this rate we will have to wait until the next century until anything real is done about the fund manager rip-off. Our bureaucrats, who have their own pension system, see no urgency at all.
Here then is the message to them: Let’s do it over again, let’s do it right this time and let’s do it now.