A major overhaul of Hong Kong’s compulsory pension system – the Mandatory Provident Fund (MPF) – could bring about savings of between HK$30 billion (US$3.9 billion) and HK$40 billion for millions of employees in the first 10 years after its launch in 2023, a government minister says.
Secretary for Financial Services and the Treasury Christopher Hui Ching-yu disclosed the figures in a post on Sunday on his official blog, in which he gave an update on the progress of work on the e-MPF platform.
The e-MPF, an initiative by former Hong Kong leader Leung Chun-ying, is a centralised electronic platform that aims to standardise and streamline administration processes of fund schemes to cut costs. The platform had been due to be completed by 2022 at the earliest.
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The MPF was launched in December 2000 to provide retirement protection to the working population. Since its inception, total assets under management have reached more than HK$1 trillion (US$128 billion).
However, the scheme has been criticised for service providers’ high fees and the limited information they provide on the breakdown of costs such as fund manager, trustee and administrative charges.
Currently, about 4.6 million scheme members with about 13 million accounts are covered by 27 MPF schemes run by 14 trustees. Some 30 million MPF administration transactions every year are paper-based, Hui said.
This has partly contributed to the high administration costs of the MPF system. Hui said the government had listened to people’s views and agreed there was “big room for improvement” in terms of fees, charges and user experience.
“At present, the industry-wide fund expense ratio is around 1.44 per cent of the asset under management. Of this, about 40 per cent, or 0.58 per cent of the asset under management, goes to scheme administration,” Hui said.
“With the launch of the e-MPF platform in 2023, we expect the average administrative costs to be paid by scheme members could fall to about 30 per cent, or 0.3 per cent to 0.4 per cent of the asset under management.
“Depending on the adoption of the digital platform and the degree of increase in operational efficiency, we expect the administrative costs to gradually fall to 0.2 per cent to 0.25 per cent of the asset under management over 10 years … with accumulated savings in costs between HK$30 billion and HK$40 billion.”
He added: “Of the 4.6 million MPF scheme members, over 99 per cent will benefit.”
According to a report last September by the Mandatory Provident Fund Schemes Authority, the body that oversees the MPF, the fund expense ratio could be as high as 3.34 per cent.
A consultant of the authority previously estimated savings of HK$22.5 billion to HK$23.6 billion over 20 years assuming the digital take-up rate rose to 90 per cent within five years of its launch.
The authority has no power to control fund fees other than those managed by the default investment strategy, an arrangement which automatically makes decisions for employees who do not actively manage their MPF accounts. Fees charged under the strategy are capped at 0.95 per cent of net asset value.
Hui was expected to update legislators on the e-MPF project at the Legislative Council’s financial affairs panel meeting on Monday.
Panel member Michael Luk Chung-hung, of the Federation of Trade Unions, urged the government to set a benchmark for trustees to charge fees.
“Some savings are of course better than no savings. But the government should install a system to ensure all the savings are passed onto scheme members, rather than getting eaten up by the trustees at the end of the day,” Luk said.
“At 1.44 per cent, the present fund expense ratio is still too high. In some pension schemes overseas, the ratio could be lower than 1 per cent.”
The legislator also called for the scrapping of the so-called MPF offsetting mechanism as soon as possible. The mechanism allows employers to take cash from employees’ pension funds to offset severance and long service payments, when workers are sacked or the company closes down.
“It defeats the purpose of having the MPF as a retirement scheme,” he added.
This article Digital platform forecast to save Hong Kong’s MPF account holders up to HK$40 billion in first 10 years first appeared on South China Morning Post