A practical guide to the Employee Choice Arrangement: 4 things to know before switching

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

The MPFA proposed launching the Employee Choice Arrangement (“semi-portability”) on 1 November 2012, yet surveys showed most members had little idea how it worked or what its limits were. A Towers Watson consultant set out the essentials in April 2012 so members could prepare early.

What is the Employee Choice Arrangement?

The Employee Choice Arrangement is the MPF reform due on 1 November 2012, nicknamed “semi-portability”. Since the MPF began, employers have held the power to choose the provider; under the new rules, employees get one chance a year to move past employee contributions plus investment returns to a provider of their choice — gaining real flexibility. The reform is also expected to spur industry competition, improving service and fees for members.

Four things to know before moving your assets

1. One transfer per calendar year. Move in November this year and the next move cannot come before January — then not again until 1 January the year after. Note: each transfer must move the entire current employee portion out of the contribution account; nothing may be left with the old provider (former-employment preserved accounts are separate).

2. Transfers execute at an “unknown price” — beware selling low and buying high. A transfer means redeeming everything in cash and reinvesting with the new provider; the law requires completion within 30 days, but providers’ admin times and fund redemption schedules differ. You bear market risk between the redemption request and the actual switch.

3. Preserved accounts become personal accounts — mostly a rename. After launch, the “preserved account” name disappears in favour of “personal account”; little else changes. Keep consolidating personal accounts regularly so assets stay nimble.

4. Don’t hop every year — pick your preferred provider in advance. You could theoretically switch providers annually, but scattering assets across schemes only complicates management. Compare providers’ service and fees before launch and settle on the one that suits you best.

Why do employer-chosen schemes get criticised?

Because employers choose for different reasons than employees would: business relationships with a provider, one-stop convenience or admin simplicity. The resulting schemes draw frequent complaints from members. Semi-portability returns part of that choice to employees themselves.