Mandatory Provident Fund fee cuts at HSBC to spark reductions in city and increase savings

Hong Kong’s compulsory pension scheme covers 2.8 million people and manages US$100b in pension assets

PUBLISHED : Thursday, 16 November, 2017, 12:58pm
UPDATED : Thursday, 16 November, 2017, 11:00pm

HSBC, the largest bank in Hong Kong, will cut the management fees charged for its Mandatory Provident Fund schemes from December 1, with the fees for some constituent funds set to fall by 27 per cent.

The reduction is the largest ever in terms of assets covered and is expected to trigger a new round of fee cuts in the city’s compulsory pension scheme, which covers 2.8 million people and has US$100 billion in pension assets under management. It is likely to lead to more savings for Hong Kong’s working population.

“The Mandatory Provident Fund is a key pillar that supports the retirement life of Hong Kong’s working population. With an increase in the fund balance for each scheme member, proper management of accounts can effectively increase savings for an ideal retirement life. Being one of the largest such fund providers in Hong Kong, HSBC is committed to meeting the retirement needs of our members,” Alfred Yip, the head of pensions at HSBC Hong Kong, said on Thursday.

The bank has two schemes with 25 funds and it will lower the management fees of 10 constituent funds, with reductions ranging from 4 per cent to a maximum of 27 per cent. The cuts will benefit about 1.5 million accounts.

“This is the sixth time since 2007 that we have reduced the management fees of selected constituent funds under the HSBC Mandatory Provident Fund schemes, benefiting about 1.5 million accounts,” said Yip.

“We expect greater room for further reduction in this average value.”

After reduction, some of the funds will be charged at the lowest management fee of 0.75 per cent, which is the fee cap for default investment funds, formerly called core funds.

Employees win, providers lose in Hong Kong MPF’s low-fee reform

The government in April made it a mandatory requirement for all MPF providers to add one default investment fund to their schemes with a fee cap of 0.75 per cent and adopt simple investment options for the purpose of bringing overall fees down from an average of 1.55 per cent.

Hang Seng Bank, a subsidiary of HSBC, also announced cuts of between 4 per cent and 27 per cent in fees for 10 funds that are a part of its MPF schemes.

HSBC and Hang Seng Bank have a 28 per cent share of the MPF market and a fee cut by these banks is likely to trigger reductions at other providers.

The Mandatory Provident Fund Schemes Authority (MPFA) welcomed the cuts.

“The MPFA has always been concerned about the level of MPF fees. It has repeatedly urged the MPF industry to reduce fees and taken a number of measures to make room for fee reductions,” a spokesman said.

HSBC’s Yip said the MPF schemes at the bank were consolidated last year to create economies of scale, which paved the way for the fee cuts.

But even before the new round of reductions kicks in, more than 60 per cent of funds at HSBC charge low fees as defined by the MPFA. In addition, the average management fees of both HSBC’s MPF schemes are lower than the market median.