Employee Choice Arrangement: four MPF “survival tips” before it launches

The Policy Address previewed MPF’s “semi-portability” — the Employee Choice Arrangement — arriving no earlier than mid-2012, when open market competition would force fund fees down. Rather than waiting half a year to exercise that choice, workers could start with four “survival tips” from experts for the volatile market at hand.

What is the Employee Choice Arrangement?

The Employee Choice Arrangement (dubbed MPF “semi-portability”) gives employees at least one chance a year to choose their own trustee and transfer the accrued benefits in their contribution accounts. Previewed in the October 2011 Policy Address for launch no earlier than mid-2012, the expected open competition would pressure funds to cut fees — but workers need not wait passively for the choice to arrive.

Four survival tips

1. Consolidate accounts for a de facto discount: as trustees court switchers — BCT and AIA among them — moving money across with a sufficient balance can earn fund-unit rebates, an effective fee cut. It also dodges punitive fees: from 1 November, Standard Chartered would charge accounts with average balances below HK$10,000 a HK$100 monthly fee — hard-earned savings slowly eaten away.
2. Use voluntary contributions wisely: employees have little say over mandatory contributions, but preserved accounts and voluntary contributions allow free trustee choice — choose carefully.
3. Deploy spare cash smartly: take the Hang Seng Index fund Hongkongers know best — BCT is the cheapest in town yet still charges 0.7% a year in management fees, while the Tracker Fund (02800) it tracks costs under 0.3% — more than double the fee for the same exposure.
4. Press employers for more choice: lobby management for additional scheme options, putting choice back in employees’ hands.

Comparison is where fee-cutting really starts

Competition after the Arrangement’s launch should bring fees down; but the biggest winners will always be those who compare. Start by understanding fund fees — the gap between 0.7% and 0.3% management fees, compounded over the long run, devours meaningful returns. The MPF education hub teaches how to compare fund fees.