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Mandatory Provident Fund (MPF)
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Hong Kong’s compulsory pension scheme has some 9.6 million account holders. Photo: Chang Kim-fung

Huge overhaul will drag Hong Kong’s MPF pension fund into 21st century and could slash notoriously high service fees

  • New e-platform set to fuel competition, enhance transparency, and liberalise consumer rights while cutting down on paperwork
  • New managing director of MPF Authority Alice Law says move will change city’s ecosystem for pension schemes
Hong Kong’s compulsory pension system, the Mandatory Provident Fund, is to undergo the biggest overhaul since its inception in 2000 with the launch of a centralised electronic platform that could reduce its notoriously high management fees.

The robust e-platform will allow one-stop shop services for 9.6 million account holders, 300,000 employers and 14 trustees in an unprecedented move which will fuel competition among service providers.

It is also expected to enhance transparency of information flow and user experience, according to Alice Law Shing-mui, the MPF Authority’s deputy chairwoman and managing director. Scheduled for roll-out in 2022, it will be the city’s largest financial platform costing HK$3.36 billion (US$429 million).

“The e-platform will liberalise consumer rights in a sense that users are no longer a captive audience, and will have access to a more user-friendly pool of data such as comparing products and performance of funds on a screen,” Law said in her first interview since being promoted last year from chief operation officer. “It will also tear down entry barriers for smaller service providers in the market.”

Alice Law, deputy chairwoman and managing director of the Mandatory Provident Fund Authority, said the new e-platform will be a game-changer for the city. Photo: Nora Tam

The fund had assets worth HK$878 billion under management as of the end of February, while the number of new accounts grew 3 per cent in 2018.

Despite operating for 19 years, the scheme has been criticised for its service providers’ decisions to charge high fees and offer limited information on the breakdown of such costs as fund manager fees, trustees fees and administrative fees.

“The centralised e-platform will consolidate information and standardise the jargon of pension investments from portals of existing service providers,” Law said. “So, users will browse all service providers’ performance and products in one platform, which presses trustees to compete and excel.”

The authority has no power in controlling service fees of funds other than those managed by the default investment strategy, an arrangement which automatically makes investment decisions for Hong Kong employees who do not actively manage their MPF accounts. Fees charged under the default investment strategy are capped at 0.95 per cent of net asset value.

The capped fees are much lower than that of the fees of the 429 constituent funds under the MPF scheme averaged at 1.52 per cent as of March 29. With lower fees, pension holders would get higher returns on their investments. In the past 19 years, returns after fees have averaged an annualised 3.9 per cent.

Corporations are moving towards protecting their cyber data at a red-tape speed, but hackers are moving at a fibre-optic speed
Michael Gazeley, Network Box Corporation

As workers changed jobs, an individual commonly had more than one account and managing the accounts and investments could be cumbersome when it involved more than one service provider, she said.

The situation is so dire that assets unclaimed snowballed to HK$440 million last year.

“Some people have so many accounts that they have lost track of them and even how much funds they have,” she said. “Service providers are still using a lot of paperwork, but we will change the rules and turn the requirement digital.”

Law said the e-platform would be a unique system, which was a more complicated version with broader functions than Singapore’s version.

She added there were pension e-platforms in mainland China, Singapore, India, Australia, Kenya and Chile, but they serve different purposes and functions.

“Our platform will change Hong Kong’s ecosystem of pension schemes,” Law said.

The authority’s consultant estimated savings of HK$22.5 billion to HK$23.6 billion over 20 years assuming the digital take-up rate will rise to 90 per cent within five years of its launch.

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The tender for the project is expected in the third quarter of this year, after a request for proposals was set to be completed next month. In 2021, relevant MPF laws will be revised to remove the paperwork requirement. In 2022 the e-platform is expected to be launched, followed by data migration.

Pro-establishment labour lawmaker Michael Luk Chung-hung said he supported the planned centralised platform, but urged the authority to roll out more specific measures to force service providers to cut fees.

“It is good to get rid of the paperwork, which partly contributes to the high fees,” he said.

Michael Gazeley, managing director and co-founder of cybersecurity service provider Network Box Corporation, urged the authority to be extremely careful when it came to personal data protection.

“The more data aggregated in one platform, the higher the risks of being hacked,” said Gazeley, who has 30 years’ experience in cybersecurity. “Corporations are moving towards protecting their cyber data at a red-tape speed, but hackers are moving at a fibre-optic speed.”

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