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Jake Van Der Kamp

The [consultation] report will also seek public views on scrapping a controversial mechanism that allows bosses to use their portion of MPF contributions to offset severance payments for employees.
SCMP, October 5
Here at last we have the crucial reform of the Mandatory Provident Fund. It may not seem much but this change could lead to a significant improvement in your future retirement income.
First, however, we backtrack to the past.
The great oddity in the way the MPF was set up is that the choice of your MPF manager was not given to you, the beneficiary, nor even to some government official, but to all the employers you have ever had over your working career. You have not just one but as many MPF accounts as you have had employers.
It is a ridiculous, ramshackle way to have organised pension savings but it was just fine by the big financial houses that advised the government on how to structure the MPF and then became MPF fund managers.
They traded on the fact that your employers do not care as much as you do about seeing you ripped off but do care about keeping up good relations with big financial houses.
And they have indeed ripped you off with average annual administration fees of 1.7 per cent, over and above dealing costs, which you also pay. Big private funds in the US charge as little as a tenth that much for doing about as much real work.
Time to get rid of offsets by employers in Hong Kong's MPF retirement fund
The big reason that MPF managers got away with it, however, is that they enlisted employers into pleading their case for them. The law says that employees who are laid off are owed severance or long-service payments equivalent to two thirds of their latest monthly wage times the number of years of service.
And the MPF twist to this requirement is that employers can offset this payment against their MPF contributions. Thus if your employer owes you HK$50,000 in MPF benefits and HK$40,000 in severance pay, he pays you only the HK$50,000. The obligation to make a severance payment vanishes if it is less than the MPF payment.
But we run a risk here, said the employers. If we let our employees pick their own MPF managers then they will just pick the wildest risk-takers they can find, knowing that if they then lose all their money they can recover a good bit of it from the severance payments we owe them. We cannot let our employees be irresponsible like this. We must choose their MPF managers for them.
It was all nonsense, of course. This scare scenario never plays out. The MPF Authority does not tolerate wild risk takers among MPF managers and while it may be employers who choose the MPF managers, it has always been employees who choose how much risk they want these managers to take.
The government has always known this, too, which is why it amended things a few years ago to allow employees to make their choice of manager for their own contributions but only once a year and for that year only and not for the employers’ contribution.
This just made an even bigger mess of things. Even as a cosmetic it did not work. It was just a cynical piece of community relations.
But now, after constant pressure from unionist legislators, it is just possible that the severance payment offset will be dropped from MPF plans.
If employers demand some compensation for this concession I would be happy to see it given to them. The change would mean that there is no longer any substantive obstacle to reforms that would allow a fully unified MPF account for every beneficiary with the manager of his or her choice.
Not only would this clean up a massive administrative mess but it would introduce real competition at last to the pension business. MPF managers could no longer hide behind employers to suppress a free market in MPF choice. They would have to show their thieving colours or haul them down.
You would be able to shop among them for the best record of performance and the lowest fees and you could keep it all in one account no matter how many times you change jobs.
Bring it on.
 


MPF’s 10-month rally runs out of steam as assets drop 6 per cent in March

Hong Kong’s MPF set to report worst performance in 3 years in March

MPF scheme must move with the times to better meet worker needs

Hong Kong’s MPF authority to propose 2-tier surcharges for late employer contributions

Mandatory Provident Fund (MPF)

Pressure to axe severance pay offset offers glimmer of hope for ramshackle MPF scheme

The great oddity in the way the MPF was set up is that the choice of your MPF manager was not given to you. Photo: K. Y. Cheng

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


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