Employee Choice Arrangement timeline: intermediary bill first, ECA targeted for Q2 2012

On 29 September 2011, the Secretary for Financial Services and the Treasury laid out Hong Kong’s MPF reform roadmap at the Asia-Pacific pension forum. High fees and the inability to choose one’s own scheme have long been the market’s two biggest complaints about the MPF — and the government’s answer comes in two steps: first legislate to regulate MPF intermediaries, then roll out the long-awaited Employee Choice Arrangement (ECA), dubbed the “semi-portable” MPF.

When will the Employee Choice Arrangement be implemented?

The Employee Choice Arrangement lets employees transfer the accrued benefits derived from their own contributions to a scheme of their choice at least once a year. The government plans to table a bill regulating MPF intermediaries in the fourth quarter of 2011; once the bill is passed, the ECA is expected to take effect in the second quarter of 2012.

The rollout runs in three stages:

1. Q4 2011: the government introduces the bill to regulate MPF intermediaries, closing the regulatory gap in the sales and distribution chain.
2. Legislative scrutiny and passage: once the bill clears the Legislative Council, the regulatory framework is complete.
3. Q2 2012: the ECA takes effect, letting employees move the employee-contribution portion of their MPF to the scheme of their choice.

Portable assets to jump from 39% to 67%

The Secretary said competition should intensify once the ECA is in force. Portable MPF assets — the share of total MPF assets employees can transfer — are expected to leap from 39% (as of 1 August 2011) to 67%, an upgrade from the earlier forecast of 60% that signals greater confidence in the arrangement’s coverage.

Room for fees to fall further

He also noted that the average fund expense ratio across MPF funds had fallen from 2.1% in January 2008 to 1.82% by August 2011. With MPF assets still growing and economies of scale building, he believes there is still room for fees to come down further. He cited Australia as a success story worth emulating: its retirement assets have reached A$1.34 trillion.

For background on how the arrangement works, see the MPF education hub.