MPF Fund Performance Defence: Industry Chief Says 2.5% Return Meets Expectations

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

Expensive fees, poor returns, too little choice — eleven years after its launch, MPF still takes more brickbats than bouquets. Is it public prejudice, or is the system really a bad deal? The chairwoman of the Hong Kong Investment Funds Association mounted a full-throated defence: fees are not excessive, mpf fund performance meets expectations, and investment restrictions are what keep returns from going higher.

Are MPF Returns Really That Bad?

Not really. MPFA data shows MPF earned an average net annual return of 2.5% after fees over the 11 years from its December 2000 launch to end-2011, outpacing Hong Kong’s 1.1% inflation over the same stretch. The US 401(k) averaged 1.5% a year in 2000–05 and 2.6% in 2005–09 — MPF is no worse by comparison, she said, and the industry views 2.5% as in line with expectations.

Is a 1.77% Fund Expense Ratio Excessive?

She called 1.77% a headline figure: many employers have preferential terms with trustees, and members receive extra fund units at year-end, which can bring the effective average charge down to about 1.3%–1.5% — “not excessive.” Whether fees fall further depends on how much administration the law requires and on scale — total market assets, per-fund size and average account balances.

Will Semi-Portability Trigger a New Price War?

Probably not this year, she said, because trustees that wanted to cut have already cut; how hard they chase switchers depends on whether their sales teams prioritise MPF, which may be only a small slice of a bank’s or insurer’s profits. A survey found only about 30% of employees would consider switching once semi-portability launches, and whether they follow through is anyone’s guess.

Why Not Go Straight to Full Portability?

“Semi” is the stumbling block: members can only move half their assets to a trustee of their choice, which dampens the urge to switch — but full portability needs legislative change to end employers’ use of MPF contributions to offset long-service and severance payments, which cannot happen soon. Members can compare trustees’ fees and fund ranges through an MPF fund comparison before deciding.

(Editor’s note: some characters in the original report were corrupted; year figures such as “December 2000” have been reconstructed from context for reference only.)