MPF reform on fee-controlled default plan pushed back

Employees will not be able to enjoy a core fund with lower management fees of their mandatory provident fund schemes until the first half next year, rather than the planned end of this year, Secretary for Financial Services and the Treasury Ceajer Chan Ka-keung said.

The Mandatory Provident Fund Schemes (Amendment) Bill 2015 passed its third reading at the Legislative Council by 45 votes to two yesterday.

The bill mandates that all trustees provide in their MPF schemes a default plan for employees who do not to make a choice of the complex investment funds.

There are currently about 20 percent of MPF scheme members who have not made a fund choice. But once the legislation is introduced, these employees will be automatically enroled in the default fund, which is subject to the fee control.

The amendment bill will cap the miscellaneous fees, which cover compensation fund levy, establishment cost of the scheme, indemnity insurance, auditor’s fees and legal charges, to 0.2 percent of the total assets.

Management fees, meanwhile, will be capped at an annual rate of 0.75 percent. Such payments include those asset based fees paid for the services, provided by the the trustee, investment manager and sponsor of the MPF scheme.

This means that altogether, the maximum charge for the new default plan each year will be 0.95 percent of the total investment.

Chan described passage of the bill as an “important reform”, but noted it will take time for the industry to make the necessary changes and implementation will be delayed by six months.

Labour Party lawmaker Lee Cheuk- yan said the delay is disappointing and cannot be justified.

“I don’t think it really takes a lot of effort for the trustees to comply with the law,” said Lee, who believes the government is afraid of putting pressure on the trustees.

He pointed out that the MPF management fee in Hong Kong is extremely high compared to that in other countries.

“In the last financial year we suffered a loss of HK$50 billion, and still, we had to pay a management fee of HK$10 billion,” Lee added.

“So whether they make a loss or profit, they still charge the same amount. This is really unfair to the MPF holders the workers in Hong Kong,” he said.

Hong Kong Investment Funds Association chief executive Sally Wong Chi-ming said while the 0.75 management fee cap may create pressure for some trustees, most companies regard the cap as viable.