My Take

MPF has failed Hong Kong's workers, so why ask them to pay even more?

PUBLISHED : Friday, 01 May, 2015, 12:51am
UPDATED : Friday, 01 May, 2015, 12:51am

The new chairman of the Mandatory Provident Fund wants to raise the amount workers contribute to their pensions. But he has inadvertently put his finger on the reason why it should not happen. "Raising the rate is something that can be considered," said Dr David Wong Yau-kar. "But the prerequisite is that the public should have confidence in the MPF and are happy to see the contribution rate go up. The contributions are not high and that limits the growth of the MPF."

No, Dr Wong, I and probably most Hong Kong workers would not want to pay more. Why? You said it. We have NO confidence in the MPF.

First, why should ordinary workers worry about the size of the fund? Only fund managers do because they get a bigger slice of the pie.

Second, returns have been dismal since its inception in 2000. Wong said the average annual return is 4.3 per cent, which beats the average annual inflation rate of 1.8 per cent. MPF assets have reached HK$600 billion.

Big deal! You beat inflation! Bear in mind the 4.3 per cent average return does not factor in high fees, which average 1.6 per cent. So after average fee and inflation, your take-home return after retirement is less than 1 per cent. If a fund manager advertises his or her record by claiming they beat inflation, they would be laughed off the stage.

Why doesn't Dr Wong compare the MPF against well-known benchmarks, say the Hang Seng Index, the local property market, the S&P 500, the Link Reit and a well-represented fund of bonds and notes issued by the Hong Kong government and public bodies like the Airport Authority and the MTR?

We all know why: its results would look pitiful. I would bet it barely beat most public bodies' bonds and notes. Belatedly the MPF is forcing managers to put money into default low-risk funds, with fees capped at 0.75 per cent. That's still way too high considering you shouldn't pay more than the commission rates of your brokers. But of course you don't have a choice.

Index your investments to those benchmarks I just cited and hold onto them. I bet they would outperform the vast majority of fanciful fund managers over time.