Empower HK employees to make the right MPF choices

(Editor’s note: this report was originally in English and is rewritten in Chinese per this site’s practice.)

Hong Kong’s MPF system turns ten. The original community-wide pension plan faced obstacle after obstacle — not least fierce business-lobby resistance — and after twists, foot-dragging and compromise upon compromise, the MPF finally launched three-and-a-half years after the handover. Today it covers nearly 2.2 million eligible workers and some 238,000 employers at a 99% compliance rate; in the early days MPFA officials told Asia Asset Management they had expected only 60–70% compliance in the first years.

Has the MPF been a success?

From workers’ view: 40 years of contributions still won’t fund retirement. Even raising the mandatory contribution salary cap from HK$20,000 to HK$30,000, the MPF alone won’t support retirement after 40-plus years of contributions. The original intent was a basic layer atop other protection; before the MPF, under a quarter of the working population had employer coverage — bringing two million more under the umbrella can’t be bad.

What’s the biggest criticism?

High fees devouring long-term returns. Individual schemes charge about 2% a year — more than double Western levels such as Sweden and Holland at around 0.8%. Studies show that over 30–40 years, payouts before and after fees can differ by as much as 40%. No wonder the MPF is an easy target.

How should it be reformed?

Employee choice, higher contributions, empowered members. The planned employee choice (deferred to late 2011 at the earliest) would spur competition and lower pricing; but fees can’t be viewed alone — employer and employee contribution levels must rise too. Crucially, employees need the right tools and mindset to make the right investment choices with their hard-earned retirement savings.

To make the right choices for your retirement money, visit MPF fund comparison.