Employee Choice Arrangement (“semi-portable” MPF) expected in H2 2012: transferable assets to rise from 39% to 67%

On 28 September 2011, Secretary for Financial Services and the Treasury John Tsang told the Asia-Pacific Pension Forum that the government planned to table a bill on the Employee Choice Arrangement — the “semi-portable” MPF — to the Legislative Council in the fourth quarter of 2011, aiming for implementation in the second half of 2012. Accrued benefits that employees can freely transfer would rise from about 39% to 67% of total MPF assets.

What is the Employee Choice Arrangement?

The Employee Choice Arrangement (ECA), nicknamed the “semi-portable” MPF, lets employees transfer the accrued benefits from their own MPF contributions to a scheme of their choice at least once a year. Under the plan announced in September 2011, the ECA was expected to take effect in the second half of 2012, lifting transferable accrued benefits from 39% to 67% of total MPF assets, with competition among products expected to drive management fees down further.

A big jump in transferable assets

Tsang said that once workers can vote with their feet, trustees will have stronger incentives to compete for clients on fees and performance, which should help push management fees lower over time.

Fees at 1.82% — still room to fall

On the long-running complaint that MPF trustee fees are too high, Tsang said the average fund expense ratio had already fallen from 2.1% in January 2008 to 1.82% in 2011, but there was still room to cut. The MPFA would commission an independent consultancy later in 2011 to study how to simplify administration and save costs.

Companion reforms moving in parallel

In the same month, the MPFA board accepted a working group’s recommendations: adding “terminal illness” as a ground for early MPF withdrawal and letting members avoid a forced lump-sum withdrawal at retirement. The MPFA will hold a public consultation on the proposals.

For the basics of how MPF works, see MPF education; to compare trustee fees, see MPF comparison.