Redefining Hong Kong

MPF core fund reform to bring fees down

Panel members at debate urge employees to be more involved

PUBLISHED : Wednesday, 04 May, 2016, 7:08pm
UPDATED : Wednesday, 04 May, 2016, 8:11pm

The controversial MPF core fund reform to be voted on by lawmakers this month, which will introduce a fee cap, will hopefully alleviate criticism that the pension scheme has high fees and low investment returns, Darren McShane, executive director of the Mandatory Provident Fund Schemes Authority, said on Wednesday.

Speaking as a panel member in a Redefining Hong Kong debate hosted by the South China Morning Post, McShane said they would be voting on the biggest reform since the Mandatory Provident Fund scheme was introduced in 2000.

If lawmakers passed the proposed change to the law, all MPF providers would need to introduce a core fund which would have a fee capped at 0.75 per cent as the default investment arrangement for all the 600,0 00 employees who did not choose how to invest their MPF.

The introduction of the core fund reform is likely to help bring the fee down
Darren McShane, Mandatory Provident Fund Schemes Authority

At present, Hong Kong does not have a standard default arrangement and the fund providers decide how to invest, which may see funds subject to high management fees or put into investments that are too risky.

“The introduction of the core fund reform is likely to help bring the fee down,” McShane said in the panel discussion.

However, he and other panel members said the core fund reform alone could not solve all the problems of MPF, which has been criticised for high fees, low returns and insufficient retirement savings protection.

“Since the MPF is a compulsory retirement scheme, people feel negative about the scheme because they are forced to do it,” McShane said.

Another panel member, EY partner Jeroen Buwalda, said more government incentives and employee involvement was needed to improve the pension scheme.

“According to international experience, many overseas governments offer tax incentives for the pension contribution of the employees,” Buwalda said.

Technology would help too, Buwalda said. “If the providers could allow the employees to use their mobile phone or internet to access to their MPF accounts, it would make it more comfortable and convenient to access to their MPF,” he said.

Professor Nelson Chow, from the University of Hong Kong’s department of social work and social administration, agreed that employees’ involvement was very important.

“Some recent survey showed that 50 per cent of employees never read their MPF statement. They do not care about their MPF,” Chow said.

He said many people considered their MPF amount to be too small and so they did spend time to manage it. “More education should be done to change this culture,” he said. “The employees should be more active in managing their MPF investment to make the right investment allocation.”

Another panel member, Hong Kong Investment Funds Association vice-chairman Arthur Bacci, who is Hong Kong head of MPF provider Principal International, said MPF should go electronic and digital to cut down costs and fees.

At present, the MPF providers needed to handle about 200,000 paper documents and forms on a daily basis, with many employers still using manual methods to give information and pay contributions to the providers, which added to costs.

All panel members defended the MPF scheme – which lost an average of 0.11 per cent in the first four months of this year – against criticism of its investment performance.

“People should take a long term view about the MPF investment as they are not taking the money out tomorrow but only when they retire. This may be 20 to 30 years later,” Bacci said.

MPFA data shows that on a 15-year basis, the MPF has achieved an average annual return of about 3.1 per cent, beating the average inflation rate of 1.8 per cent.