Low-fee pension funds account for 9pc of Hong Kong employees, says MPF authority

Nine per cent of Hong Kong pension fund accounts, or 834,000 accounts, have switched to the newly launched low-fee default funds since April, the Mandatory Provident Fund Schemes Authority (MPFA) said on Wednesday.

The Default Investment Strategy (DIS) reform, introduced on April 1, requires all 15 pension fund providers in the city to set up default funds for employees who do not make specific investment requests, capping management and other fees at 0.95 per cent, lower than the average of 1.56 per cent charged by MPF fund managers. The default funds now have HK$15.4 billion (US$1.9 billion) worth of assets.

Many are still “waiting and seeing” how the DIS funds will perform as it has only been four months since the reform was introduced, said Cheng Yan-chee, chief corporate affairs officer and executive director of Hong Kong’s pension fund watchdog MPFA.

“Our goal of introducing the DIS scheme will be achieved if more employees start paying attention to and managing their MPF accounts,” said Cheng.

The reform was a major step toward addressing high management fees and complexity in selecting funds under the Hong Kong pension system, which covers 2.9 million employees and manages HK$700 billion (US$90 billion) in net assets. There are 9.3 million pension fund accounts in total.

Up to 80 per cent of overseas pension scheme members choose default funds, Darren McShane, former executive director of the MPFA, told the South China Morning Post in March. At the time McShane said he expected the ratio in Hong Kong to be 30 to 40 per cent.

Among the 834,000 MPF accounts using default funds, 71 per cent, or 594,000, chose voluntarily, while 29 per cent were automatically shifted to default funds because they didn’t provide instructions on their investments.

Pension fund providers are expected to come under more pressure to lower management fee levels, said Cheng. The MPFA will conduct a review the fee cap in three years, he said.

Two mixed-asset funds make up the DIS scheme. The average return of the Core Accumulation Fund, the more aggressive fund with 60 per cent of its investment in global stocks, was 4.28 per cent by the end of July. The conservative Age 65 Plus Fund, investing 80 per cent in bonds, posted a 1.71 per cent return.

Both returns are slightly lower than the reference portfolio performance calculated by the Hong Kong Investment Funds Association and the Hong Kong Trustees’ Association Limited, which are 4.54 per cent and 1.79 per cent respectively.

Cheng said the MPFA will keep a close eye on the performance of the DIS funds.

Hong Kong faces an ageing workforce, with the government estimating almost one in three people will be aged 65 or above by 2041. Around 16 per cent of Hong Kong’s 7.3 million population was 65 or over in 2016, compared to just 10.3 per cent in 1997.