Hong Kong’s pension fund service providers benefit most, not the clients

Back then, I ran Bank of Bermuda’s pension fund administration business (now part of HSBC), and was closely involved with the government and industry in the run-up to launch. The biggest issue we faced was not administration systems but distribution. How to reach the myriad of small businesses in the community that needed to sign up to MPF?

The solution was to create a business incentive for the insurance sector which had the sales forces to match the problem. Thus, the whole scheme was essentially privatised with a revenue basis to make it interesting. The expectation being that, over time, consolidation and asset growth would reduce the number of players and the costs of administration to the consumer.

This has not happened. Our market is simply too small for competitive pressures to work in the way then envisaged.

Seventeen years on, the original players have more than recouped their sizeable initial investments and garnered a very healthy return.

I received my own MPF statement last week (after the same number of contribution years) and it is quite clear that the main beneficiaries under MPF are the service providers and not the clients. Costs are simply too high and centralising administration, as van der Kamp suggests, is the correct solution. Impoverished pensioners will be a significant charge on the government of Hong Kong if we don’t act now to correct this problem.