Mandatory Provident Fund (MPF)

Unions 'an option' to run MPF schemes

Pensions chief suggests NGO involvement may help force down management fees, but lawmakers and investment firm raise doubts

PUBLISHED : Sunday, 25 November, 2012, 12:00am
UPDATED : Monday, 03 October, 2016, 5:52pm

Mandatory provident fund schemes run by non-profit organisations could be an option to drive down management fees, the head of Hong Kong's pension fund regulator says.

Anna Wu Hung-yuk cited trade unions and industry associations as an example of possible alternatives to the current scheme providers from the finance industry.

She pointed to trade union involvement in running pensions in Australia.

Wu, chairwoman of the Mandatory Provident Fund Schemes Authority, said involving non-governmental organisations would inject more competition into pension provision.

However, lawmakers and one of the city's largest private investment firms, Invesco, have reservations about the idea.

Establishing non-profit-making operators as MPF trustees is one of the authority's recommendations to the government for long-term structural reform of the pension schemes.

The recommendations will be released tomorrow along with a consultancy report, commissioned by the authority, which suggests capping MPF management fees.

In an interview with the Sunday Morning Post, Wu said procedures for managing MPF schemes could be streamlined to cut costs, but there was still a need for thorough reform.

"Non-profit-making operators treat the interests of employees as their top priority and their fees could serve as a benchmark in the market," Wu said.

There are 19 private sector trustees, which charge an average fee of 1.74 per cent of assets under management, much higher than in many other countries.

An Ernst & Young survey released in May found pension providers' fees were as low as 0.56 per cent in Chile. It found savers were charged 1.19 per cent in Britain, 1.21 per cent in Australia, and 1.41 per cent in Singapore.

Wu, who is also an executive councillor, said trade unions and industry associations were possible candidates to run MPF schemes.

"Another possibility is for the government to set up its own framework to manage the fund schemes," she said.

Wu admitted that allowing the non-profit sector to run pension schemes would incur technical and resource difficulties.

Labour Party chairman Lee Cheuk-yan said trade unions and industry associations did not have the resources or funds to do the job. "What would be much better is a public option run by the government," he said.

Fellow Labour Party lawmaker Cyd Ho Sau-lan said trade unions and industry associations would need proper monitoring if they ran pension schemes.

Invesco, one of the city's largest private investment firms, argued that what was saved in costs would be lost in expertise and would, in time, lead to problems.

A spokesman said: "We have a wealth of experience and have shown proven pension capabilities over the years.

"We have a thorough understanding of what employers and pension members need.

"If those outside the industry were involved, it could have a detrimental effect."