THE MANDATORY PROVIDENT FUND SCHEMES AUTHORITY (MPFA) has come up with four reform proposals well worth the government’s serious consideration – proposals aimed at bringing down MPF fees.
Since their introduction, MPF schemes have on average yielded an annual net return of no more than 3.4 percent, while the average fees charged last year amounted to as much as 1.74 percent. As MPF assets have grown to a total of about $400 billion, this means that the fund industry is pocketing about $7 billion of employees’ hard-earned money every year.
According to an MPFA-commissioned consultancy study on MPF fees, the administration of an MPF scheme may involve as many as six different fee-charging service providers, including, in addition to a trustee and an investment manager, an MPF product sponsor, MPF intermediaries, an administrator, and a custodian. Is it really necessary to involve so many service providers? This is a question the authorities should look into.
And as regards MPF fees, 0.75 percent of the assets under management go to administrative costs. As MPF assets currently stand at about $400 billion, this means about $3 billion. But it appears that the different items of “administrative work” enumerated can well be streamlined and simplified to cut costs.
Now the MPFA has laid before the government four reform proposals, namely (1) capping the fees of MPF funds; (2) mandating various types of low-fee funds in each MPF scheme; (3) providing a type of basic, low-fee, default fund arrangement; and (4) introducing a non-profit operator to run a simple and low-fee MPF scheme. These proposals are all designed to bring down MPF fees, for experience shows that market forces alone cannot be depended on to result in fair charges.
The MPF system aims at providing old-age protection for retired employees, and contribution to MPF schemes is mandated by the government. But now MPF schemes have become a goose that keeps laying golden eggs for fund managers, trustees, and four other service providers whose specific responsibilities we know nothing about. This state of affairs is not right or ethical. The government has therefore the duty to reform the MPF system.
The MPFA’s four reform proposals appear to be a step in the right direction, but they are still not forward-looking enough. There is, for instance, no reform timetable. The government must show the political determination to carry out comprehensive reforms for the development of the MPF system along fair and reasonable lines.
The MPFA’s call for a non-profit operator to run a simple and low-fee MPF scheme certainly warrants further consideration. In any case, there should be no contradiction between such a non-profit operator and a public trustee (the Hong Kong Monetary Authority, for example) that also runs low-fee MPF schemes. The two could co-exist and work side by side, which we believe would be more effective in driving down MPF fees.
While the general reform programme for the MPF system is still in need of study, the MPFA is trying to get one million employees with more than one MPF account to consolidate their accounts. This is what the MPFA should do, since too many accounts will greatly increase administrative costs and defeat the purpose of the MPF system.
明報社評 2012.11.27﹕政府要拿出決心 全面改革強積金
積 金局向政府提出4方面改革，分別是（1）為強積金收費設定上限；（2）規定所有強積金計劃提供不同種類的低收費基金；（3）設立一種簡單、低收費、穩健的 「基本基金」；（4）引入非牟利經營者，提供簡單、低收費的強積金計劃。這些改革，都是從降低收費?眼，證諸過去，單靠市場力量，不可能設定公平合理的收 費水平。