Consolidate your MPF accounts: 4 million preserved accounts can’t wait for semi-portability

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

With MPF semi-portability expected at end-2012, trustees were already cutting fees to chase preserved-account clients. Hong Kong had just over 2 million employees — but more than 4 million preserved accounts, some workers holding three or four. Many ignored them as too small to matter — but there was no need to wait for semi-portability to consolidate MPF accounts.

Why consolidate preserved accounts?

Under the old system, employers chose the trustee; employees could only pick constituent funds within that scheme, stuck even with pricey or poorly performing trustees. Semi-portability’s significance was letting employees move their mandatory contributions to a chosen scheme’s personal account once a year — and competition would push trustees to cut fees.

A Fidelity institutional business executive suggested comparing trustees on: fund information, investment performance, switching turnaround, fund fact sheets, annual benefit statements, online services, fees and customer service quality. Workers who had changed jobs repeatedly and lost track of their preserved accounts could ask the MPFA for their account records.

What trips people up when consolidating?

The most common snag was a changed signature. Readers wrote in that consolidation often dragged on: today’s signature differed from a decade ago, and the new provider had to verify records — including the signature — with the old one. A mismatch meant the transfer failed at first pass; workers had to revisit the old provider to review their historical signature and re-sign it with the new one, typically adding one to two business days. (A few garbled characters in the original have been reconstructed from context.)

How should allocation differ by age?

His rule of thumb: new workforce entrants retiring in 40 years could go aggressive, with 90–100 per cent in equity funds; those 10 years from retirement should cut aggressive holdings to 30 per cent to prepare for decumulation. In short, the young could chase returns aggressively; the near-retired should favour capital-preservation and guaranteed funds — and everyone should review allocations against life stage, markets and risk tolerance.

And don’t judge funds on fees alone: returns reflected investment risk and strategy, with fees mostly priced in; the Fund Expense Ratio (FER) was the true cost comparison.