LegCo’s MPF overhaul motion: K C Chan rules out universal pension, pledges deeper reform of the three pillars

On 2 November 2011, Financial Services Secretary K C Chan gave LegCo’s “overhaul the MPF” motion a full official response: the government would not fundamentally change the system but deepen the existing three pillars — social security, MPF, and voluntary savings.

Why no universal pension?

Chan’s answer to universal-pension advocates: Hong Kong’s retirement protection rests on three complementary pillars — non-contributory social security, the employment-based, privately managed MPF that helps workers accumulate retirement savings, and voluntary savings. The Chief Executive had said consensus on universal pensions was elusive; with minimum wage just implemented and a health-protection scheme under study, grassroots citizens had basic coverage — a fundamental redistribution-based redesign was “impractical”. The Central Policy Unit was studying the way forward.

Three fee-cut measures and their timetable

Chan confirmed the government shared lawmakers’ fee-cut goal and laid out the timetable:

1. ECA: a bill tightening MPF-intermediary regulation would go to LegCo next month; if passed this session, the Employee Choice Arrangement could launch in the second half of next year, with freely movable assets jumping from 39% to 67%.
2. Admin-cost study: the MPFA was selecting consultants to analyse trustees’ operations and costs, preliminary findings expected in Q2 next year.
3. Compensation-fund levy: on 21 November the government would propose an auto-adjust mechanism to the financial affairs panel; based on the MPFA’s risk assessment the 0.03% annual levy could be suspended — subsidiary legislation in Q2 next year, pause from 2013, fully reflected in expense ratios.

The fee record: average expense ratio from 2.1% to 1.78%

Since September 2007, every trustee had cut fees or launched low-fee funds: 11 trustees cut more than once, two launched low-fee schemes. The average fund expense ratio had fallen 15%, from 2.1% in January 2008 to 1.78% in October 2011. Chan said fees should fall further as assets grew and the system matured — market-based pressure would continue.

What members can do

The debate’s biggest takeaway: the second half of 2012 would be the system’s watershed — ECA, consultant study and levy auto-adjustment firing together. Rather than wait for institutional change, understand your own scheme’s fees now: movable assets rising from 39% to 67% means your choices are expanding. The MPF education hub tracks the system’s latest developments.