Employee Choice Arrangement: greater autonomy over MPF investments

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

Legislative Council passed the Mandatory Provident Fund Schemes (Amendment) Ordinance 2012 on 21 June 2012, and the “semi-free choice” Employee Choice Arrangement took effect on 1 November 2012. Over two million employees gained real autonomy — an AIA MPF executive wrote then on public attitudes and the switching process.

How did workers view the new scheme?

An early-year “AIA MPF ideal retirement living” survey found one in ten respondents would switch providers immediately, with about 46% considering a move. The deeper meaning: working adults were waking up to MPF management, thinking about their entitlements and wanting to manage personal MPF investments more actively.

How did switching trustees work?

1. Complete the designated asset-transfer form and submit it to the chosen new trustee.
2. The new trustee forwards details to the original trustee for verification.
3. Once verified, fund units are sold (redeemed) on the member’s behalf.
4. Proceeds move to the member’s MPF account with the new trustee.
5. The new trustee buys the member’s chosen funds as instructed.

What were the risks?

“Market-gap risk”. Redemption and reinvestment took time; if markets moved sharply in between, buy-high-sell-low could result.

Also remember: accrued benefits from current employee mandatory contributions could move once per calendar year in one lump sum; benefits from former employment could move without limit.