New deal: MPF’s Default Investment Strategy slashes charges in half
Permissible charges are set at no more than 0.75 per cent of net asset value for the services of trustee, administrator and investment fund manager plus 0.20 per cent for recurrent out-of-pocket expenses
The new MPF Default Investment Strategy (DIS), which came into effect on April 1, is designed to meet two objectives.
The first is to provide a prudent investment plan for scheme members who have not made their own choice of MPF funds. Their contributions will now be invested through the DIS, with a view to achieving steady returns, managing investment exposure, and automatically reducing risk as individual members move closer to retirement.
The second is to impose statutory fee control for the two DIS constituent funds. Permissible charges are set at no more than 0.75 per cent of net asset value (NAV) for the services of trustee, administrator and investment fund manager, plus 0.20 per cent for recurrent out-of-pocket expenses.
The fee cap is roughly half the average level charged on existing MPF funds, and it will be regularly reviewed in the next three years for possible further downward adjustment. This recognises that fees charged have a significant impact on long-term investment outcomes. And the hope is that setting a benchmark of less than 1 per cent will push scheme providers to move more quickly in the same direction.
“Previously, MPF contributions made without an investment choice – a survey found that applied to about one-quarter of the 2.7 million employees involved – would go into the scheme provider’s default investment arrangement,” says Cheng Yan-chee, chief corporate affairs officer and executive director for the Mandatory Provident Fund Schemes Authority (MPFA).
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