Mandatory Provident Fund (MPF)

Lower fees and simpler investment choices for Hong Kong provident fund

All 15 MPF fund providers to introduce default investment offering

PUBLISHED : Wednesday, 31 August, 2016, 2:32pm
UPDATED : Wednesday, 31 August, 2016, 11:28pm

Hong Kong’s 2.5 million employees are a step closer to enjoying lower fees and more choices of investment for their Mandatory Provident Fund (MPF), as the regulator next week kicks off its widest campaign yet to promote the latest reforms for the pension plan, since its launch in 2000.

Cheng Yan-chee, Mandatory Provident Fund Schemes Authority executive director, said on Wednesday the biggest change is the introduction of a default investment strategy (DIS) fund – formerly called a core fund.

There will also be lower caps put on the fees charged to change the mix of people’s choices of fund.

“The reforms are aimed at bringing the fees down and allowing more fund choices for the 2.5 million employees covered by the MPF,” Cheng said.

“Employees should start checking their MPF accounts this month, to prepare for the default investment strategy reform, which will provide additional investment choice and a lower fee cap,” Cheng said.

He urged members to check that their correspondent address with the MPF is accurate, and to start learning about the new features of the default investment strategy funds.

The MPF, which covers the city’s 2.5 million employees, has been criticised for its poor performance and its fees, that are higher than in comparable overseas markets. Its management fee is around 1.5 per cent, almost double that in the US.

The reforms are aimed at bringing the fees down and allowing more fund choices for the 2.5 million employees covered by the MPF
Cheng Yan-chee, executive director, MPFA

Under the reform, which is expected to be implemented by April next year, all the 15 MPF fund providers will have to provide one default investment strategy fund within their MPF offerings.

There will also now be a 0.2 per cent cap put on out-of-pocket expenses charged for various professional fees, and a capped 0.75 per cent management fee.

At present, there are no rules on how providers invest contributions by employees who do not choose how to invest. Cheng said under the reforms, the current HK$18 billion invested by these 600,000 employees across around 1.05 million accounts, and all future contributions, will be able to go into default investment funds, whose investment strategy will involve a mix of stocks and bonds, with the stock component reducing with an employee’s age.

“These default investment funds will help any employees who do not know how to, or who are not interested in making their own investment choices, to be assured their MPF is being invested in a low fee fund, at appropriate risk levels,” he said.

Cheng said those employees who have chosen other MPF investment funds can also now choose to shift their investment into the default investment strategy funds, to enjoy the lower fee.

Anyone who has never chosen to invest, should also inform the MPF provider of their address so they can receive the latest information on the reforms being launched.