MPF fund fees comparison: why Hong Kong’s 1.74% charge was not what it seemed

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

In May 2012, an Ernst & Young survey put Hong Kong’s average MPF total expense ratio at 1.74 per cent — the highest among four benchmarked retirement markets. But industry leaders argued the percentage was misleading: in dollar terms, Hongkongers paid less per head than Australians.

Why were MPF fees so high in Hong Kong?

MPF fees were high mainly because of administration costs, not investment management. Of the 1.74 per cent total expense ratio, investment management accounted for only 0.57 per cent — below Australia’s 0.6 per cent — while administration swallowed 1.17 per cent. With 98 per cent of employers being SMEs of under 50 staff that resisted digital channels, costs were hard to compress.

An Ernst & Young executive director said the charges were not unreasonable and needed to be broken down. The Hong Kong Trustees’ Association chairman denied trustees were overcharging, pointing to the SME-dominated employer base and low digital adoption as structural cost drivers.

In dollar terms, Hong Kong was cheaper than Australia

The outgoing chairman of the Hong Kong Federation of Insurers noted Australia had about four times as many contributing members and a retirement pool 20 times larger. Judged as a percentage of assets, the comparison misled; in real money, Hong Kong members paid HK$1,577 a year each, over 10 per cent less than Australia’s HK$1,760.

Could bigger scale bring fees down?

The Investment Funds Association chairwoman projected MPF assets would grow from about HK$390.7 billion to HK$1 trillion in around a decade (by 2022) and HK$1.8 trillion by 2030. With roughly 60 per cent of costs fixed, fees could fall to 1.18 per cent. Retirement systems typically take 40 years to mature, so steep fee cuts were the long-run trend.