Are MPF fees too high? Competition is the real cure

August 2011’s global sell-off left MPF with an average return of negative 5%, equity funds losing nearly 9%. Losses hurt — but more deserving of workers’ attention than one bad month is the management fee charged every year, win or lose.

How expensive are MPF management fees?

MPF fund management fees run about 1% to 2% a year, charged whether funds gain or lose; as long as managers beat their benchmarks they have “done their job” — this sit-back-and-earn model is why fees stay stubbornly high. As of September 2011, some voices called for funds to target “absolute returns” — but that would require fundamental change across asset classes, fund selection and investment style. Easier said than done.

Why does competition bring progress?

The “MPF Employee Choice Arrangement” had been talked about for years without arriving, yet competition is the most effective mechanism for pushing fees down and service up. Once employees could vote with their feet, providers would cut fees and improve service and products to win business.

Rather than ignoring your MPF, learn its fee structure early: fees for similar funds can differ enormously, and over decades of compounding, a 1% fee gap eats a sizeable chunk of retirement savings. Compare fund fees with MPF fund search.