Hong Kong MPF fees “too high” at 1.74pc, trailing global peers, EY study finds

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

(Editor’s note: the original was an English-language report published on the Chinese pages; this is a fresh English rewrite.)

An Ernst & Young study commissioned by Hong Kong’s insurance, investment funds and trustees associations found Hong Kong MPF’s average fee at 1.74 per cent of assets — higher than Australia, Chile, Singapore and the UK, whose pension assets dwarf Hong Kong’s. Improving operational efficiency left room to cut MPF management fees.

Where did the 1.74 per cent go?

Administration and direct expenses took the lion’s share at 1.17 per cent; fund management fees were just 0.57 per cent. The insurance federation’s immediate past chairman said there was “much room for the fee to come down, and it is an inevitable trend”. Competition was already pushing fees lower, with BCT, Fidelity, AIA, HSBC and Axa among those cutting charges in the previous year.

The investment funds association chairman estimated that with unchanged fee structures, efficiency gains alone could bring total MPF management fees down to 1.18 per cent of assets by 2030.

Was small scale an excuse?

Over 11 years, MPF had grown to more than 2.5 million members with assets above HK$365 billion (US$47 billion), at 99 per cent participation. At 5 per cent annual asset growth, the system was projected to reach HK$1 trillion by 2022.

Providers countered that fees were in line with jurisdictions at a similar stage of development. A consultancy’s Hong Kong investment head had called on providers to replace asset-based percentage fees with flat rates — a stance held for years; the consultancy had previously rated MPF highly on investment performance and fund options while criticising administrative fees as too high and investor education as falling short.

Covering the same EY study as companion Chinese-language reports, this version kept the English financial-press angle: numbers first, international comparison as the main course.