Making Sense of MPF Fees: The Five Charge Categories and How to Read the Fund Expense Ratio

MPF fees are one of the issues members care about most, and calls for lower MPF charges keep growing. In fact, the fund expense ratio has already fallen from 2.1% in January 2008 to 1.85% in January 2011 — a drop of more than 10%. But to save money, you first need to understand what MPF fees actually cover.

What do MPF fees include?

There are five main categories: joining and annual fees, transaction fees, constituent fund operating fees, underlying fund charges, and other service charges. The joining fee is a one-off charge for opening an MPF account; the annual fee is levied yearly, either as a fixed sum or as a percentage of the account balance — though most schemes waive it now. Transaction fees are deducted from contributions or withdrawals as a percentage, plus any bid-offer spreads on fund units — again, mostly waived today. Constituent fund operating fees go to the professionals running the funds: trustee, custodian and investment manager fees, guarantee fees for guaranteed funds, and operating expenses like legal and audit costs. Underlying fund charges apply to MPF funds that invest in other funds rather than directly in stocks and bonds. Finally, extra services — such as an additional annual benefit statement — may attract other service charges.

Why can’t MPF fees be compared directly with ordinary funds?

Because trustees must also perform statutory administrative duties on top of investment management. Unlike ordinary retail funds, MPF trustees have to verify and chase employer contributions, allocate members’ contributions across funds according to their chosen portfolios, and report default contribution cases to the MPFA. So the fees cover administrative work as well as investment management. One protection worth knowing: for MPF conservative funds, if the return falls below the “prescribed savings rate” published monthly by the MPFA, the trustee may not charge any administration fee for that month.

What is the fund expense ratio?

It is the standardised yardstick for comparing fee levels across funds. The MPFA website has a fee comparison platform where members can look up each fund’s expense ratio and compare charges across schemes and fund types on a like-for-like basis. Note that different fund types legitimately cost different amounts — actively managed equity funds generally charge more than conservative funds — so compare within the same fund category.

What will drive fees down further?

Market competition and economies of scale. The law does not empower the MPFA to set fee levels directly; charges can only adjust through the free market. The MPFA has been pressing trustees to cut fees while simplifying administration and improving fee transparency. As total fund assets grow and the upcoming Employee Choice Arrangement intensifies competition, there should be room for further reductions. Quite a few trustees have already launched low-fee funds or schemes — members should compare actively.

To compare charges and returns across MPF funds, visit MPF fund comparison.