1% More in Management Fees Can Swallow HK$220,000 of Your Nest Egg

This article is a rewrite of a report from October 2012.

What does 1% more in MPF management fees cost? The Consumer Council’s 2012 arithmetic: contributing HK$2,000 a month from age 35 (including the employer’s share) at 5% annual returns until 65 — raising fees from 1% to 2% cuts the final balance by HK$220,000; to 3%, by HK$400,000. MPF management fees aren’t small change — they’re the big thief of retirement money.

How much does 1% more cost?

HK$220,000 over 30 years. The trial: HK$2,000 a month from 35, HK$720,000 total over 30 years, 5% returns. At 1% fees, about HK$1.39 million at retirement; at 2%, HK$1.17 million — 1% more costs HK$220,000; at 3%, HK$990,000 — HK$400,000 less.

How wide is the fee gap between similar funds?

Mixed-asset funds: 0.44% to 4.62%. MPF fee spreads are extreme: 0.17% to 4.62% overall, a 26-fold gap; mixed-asset funds average 0.44%–4.62%, equity funds 0.51%–2.96%. Fees are deducted whatever the performance.

Why does it compound so hard?

Compounding in reverse. Fees nibble a little each year; over 30 years of compounding the damage is shocking. Returns compound for you; fees compound against you — the longer the time, the bigger the bite.

What is the lesson from 2012?

1% isn’t small — it’s HK$220,000. The 2012 calculation turned an abstract percentage into hard dollars: 1% more in fees equals HK$220,000 gifted to trustees. MPF management fees are the one sum every worker should do — because once you do, you’ll want the cheaper fund.