Hong Kong’s largest bank, HSBC, has announced it will slash management fees charged for its Mandatory Provident Fund (MPF) schemes from December 1, with fees for some constituent funds set to drop by as much as 27%.

The reduction is the largest ever in terms of assets covered and is expected to spark off a new round of fee cuts in the city’s compulsory pension scheme, which covers 2.8 million people. “It is likely to lead to more savings for Hong Kong’s working population,” the South China Morning Post (SCMP) proclaimed when the announcement was made on November 16.

Francis Chung, chairman of MPF Ratings Limited, a provider of pension research views and opinions, commends the move to some extent. “HSBC was the only MPF scheme sponsor to transform existing mixed-asset funds into Default Investment Strategy (DIS)-compliant funds, an innovative approach which created DIS funds with immediate scale and rewarded existing members of those funds, not just new DIS fund investors, with an immediate fee reduction,” he tells Asia Asset Management.

All MPF schemes have to offer the DIS, which came into effect on April 1 this year, and was designed to automatically reduce investment risk as a member nears retirement by adjusting benefits in the two designated funds – the Core Accumulation Fund and Age 65 Plus Fund. MPF benefits of members who do not provide investment instructions to their trustees are automatically invested in accordance with the DIS.

The SCMP also quoted Alfred Yip, the head of pensions at HSBC Hong Kong, as saying: “The MPF is a key pillar that supports the retirement life of Hong Kong’s working population. With an increase in the fund balance for each scheme member, proper management of accounts can effectively increase savings for an ideal retirement life. Being one of the largest such fund providers in Hong Kong, HSBC is committed to meeting the retirement needs of our members.”

However, Mr. Chung points out that an unintended consequence of lowering fees in the DIS-compliant funds was that it accentuated the fee difference between HSBC’s other mixed-asset funds and their now DIS-compliant funds.

Yet on the day HSBC’s announcement was made, the Mandatory Provident Fund Schemes Authority (MPFA) announced it “welcomes another round of management fee reductions by a MPF service provider, which benefits millions of MPF account holders”.

A spokesperson for the regulatory body said in the same statement that “The MPFA has always been concerned about the level of MPF fund fees. It has repeatedly urged the MPF industry to reduce fund fees and taken a number of measures to make room for fee reductions. These measures include enhancing and standardising fee disclosure, implementing the Employee Choice Arrangement, streamlining and simplifying administrative processes, requesting trustees to offer low-fee funds as well as merge less efficient schemes and funds”.

The MPFA also said it had expected the DIS to have a benchmark effect on the market. “With the fees of the DIS funds capped, their introduction has put pressure on other MPF funds to reduce fees as well. From the passage of the DIS legislation in May 2016 to end October 2017, 63 MPF funds had cut their fees, with the biggest reduction up to 54.55%”, it stated. It also added that it expects other MPF service providers to follow suit and reduce the fees of MPF funds to benefit more scheme members.

But is lowering fees across the board really the best way forward for the mandatory retirement scheme and its members? Mr. Chung isn’t convinced.

“By demonstrating innovation and taking the lead on fee positioning, HSBC is demonstrating leadership in an industry which should demand competition, but I would caution the industry to reflect on the obsession-like focus it has on fees. The long-term success of MPF will not be a result of lower fees, rather, the industry’s ability to effectively engage with members to motivate them to focus on building wealth,” he says.

The MPF had total assets of HK$673 billion (US$86.6 billion) as of January 31, 2017.