MPF fund fees comparison: why charges stayed stubbornly high in 2011

As of October 2011, high MPF fund fees were the system’s most criticised flaw. MPFA figures showed an annualised internal rate of return of 5.4% since the scheme’s December 2000 launch — but conservative, guaranteed and money-market funds averaged only 1.2%, 1.6% and 0.8% a year respectively, while some providers charged administration fees of 2.49%, 3.92% and 1% on those same low-return products.

How is the MPF fund expense ratio measured?

The fund expense ratio is the standard gauge of MPF charges, expressing recurring costs — administration, investment management and the like — as a percentage of assets. The MPFA stressed the average ratio had fallen from 2.1% in 2007 to 1.81% in 2011, but critics countered that equity and mixed-asset funds, holding 78% of total assets, rarely cut fees — providers could hit the headline number simply by adding a few cheaper products.

Why was the government seen as powerless?

A legislator at the time pointed to two causes: the government had no real grip on the industry’s operating-cost figures, and it lacked effective countermeasures. The online fee-comparison platform and the still-planned employee choice arrangement added transparency and competition at the margins, but did little to bring actual charges down.

What three reforms were proposed?

First, the government should investigate providers’ costs and revenues to ground future regulation, borrowing from the regulatory model used for employees’ compensation insurance. Second, the MPFA should launch its own low-fee MPF schemes to force real competition — or even a centrally run fund investing via the Exchange Fund’s management channels at lower risk — reviving the “top-up fund” idea debated during the 1998 legislation. Third, tighten the rules: legislate fee caps by fund type, scaled down as assets grow; approve only new funds priced below the peer average; and curb performance fees that could take up to 20% of gains.

Compare actual fund charges with the MPF fund fees comparison tool.