Employee Choice Arrangement by Mid-2012? Three Big Topics from the MPFA Board

At its board meeting on the afternoon of 22 September 2011, the MPFA took up three major topics in one sitting: progress on the MPF “semi-portability” (Employee Choice Arrangement), flexible withdrawal at age 65, and adding “terminal illness” as a ground for early withdrawal. The Employee Choice Arrangement remains on track for launch by mid-2012 at the earliest — members would then have the right, at least once a year, to transfer the accrued benefits from their own contributions to a trustee of their choice.

What Is the Employee Choice Arrangement, and When Will It Start?

The Employee Choice Arrangement (“semi-portability”) gives employees the right, at least once a year, to transfer the accrued benefits from their own MPF contributions to a trustee and scheme of their choice, voting with their feet to drive fees down; after the MPFA board’s discussion on 22 September 2011, the plan remains on track for implementation by mid-2012 at the earliest. BOC-Prudential Trustee CEO Chan Yue-cheong had repeatedly called for competition to open up soon so MPF fees would genuinely fall; in a bear market, he added, low fees make a material difference to fund returns. With volatile markets and investment restrictions on retirement money (such as no short-selling), the industry admits it is hard to outperform in a downturn.

What Is New for MPF Withdrawal at 65?

The board’s second topic was letting members withdraw flexibly at 65 instead of being forced to take a lump sum as now — sparing members from cashing out into a market crash and watching their benefits shrink on the spot. Details such as limits on the number and amount of staged withdrawals were undecided, but the proposal must pass “three gates”: first consulting the MPF Schemes Advisory Committee, then a public consultation once there is initial consensus, and finally legislative amendment.

What Is Proposed for Terminal-Illness Early Withdrawal?

The third topic was loosening early withdrawal for emergencies. The MPFA proposed adding “terminal illness” as a withdrawal ground — a doctor’s confirmation that a member’s remaining lifespan is counted would allow early access. The authority leans towards exempting only two categories of critical conditions: critical illness, and serious illness mainly covering long-term patients whose lives are not yet in imminent danger; a consultation will follow. For the current withdrawal rules, see the MPF education hub.