Government defends MPF’s 16-year record ahead of offsetting debate: 3.2 million covered, fees down over 25%

As the Legislative Council debated a motion to abolish the MPF offsetting mechanism, the acting Secretary for Financial Services and the Treasury used his opening speech to defend 16 years of reform to the Mandatory Provident Fund. His central argument: since the system’s launch in 2000, coverage and fee reform have made real progress, and the government and the MPFA will keep improving the scheme.

16 years in numbers: coverage up from one-third to 85%

The system is positioned as the World Bank’s recommended second pillar of retirement protection — and the coverage jump from one-third to 85 per cent is, in the government’s eyes, the headline achievement of 16 years.

Fee-reform scorecard: fund expense ratio down over 25%

Fee-reduction measures include tougher fee disclosure, requirements for low-fee funds, consolidation of schemes and accounts, and a low-fee fund list plus a fee-and-performance comparison platform on the MPFA website.

Default Investment Strategy: a standardised option with fee caps

The latest reform is the fee-controlled Default Investment Strategy (DIS): after the 2016 amendment ordinance, a commencement notice has been gazetted, requiring every MPF scheme to offer a highly standardised default strategy from 1 April 2017. Members who make no investment choice will have their accrued benefits invested under it.

• Management fee cap: 0.75%
• Recurrent out-of-pocket expenses cap: 0.2%

The strategy directly answers the “high fees, hard choices” problem, and the government hopes its benchmark effect will push overall fees lower still.

What it means for employees

This speech was the government’s defensive play in the offsetting debate: using coverage and fee numbers to argue the system “works and keeps improving”. For employees, though, only two questions matter — what is your fund’s fee, and has your accrued benefit beaten inflation net of fees? The speech did not answer how much of employees’ benefits the offsetting mechanism itself has eaten away — that is the real battleground of the motion’s debate.

Action list

• Look up your fund’s expense ratio and compare it with the 1.56% average
• Work out whether the Default Investment Strategy suits you: capped fees, but it may not match your risk profile
• Use the MPFA’s fee-comparison platform to compare similar funds
• Follow the offsetting debate — it directly affects benefits tied to severance and long-service payments