MPF Reform: A 1% Fee Cap?

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

When MPF launched, funds were small and higher fees were tolerable. But with nearly HK$400 billion under management, every fee is astronomical. This commentary proposed a government fee cap: new contributions charged at most 2%, with all subsequent fees totalling no more than 1%.

Why is 1% the fair line?

Scale grew; fees should have fallen. At launch it was a new venture with limited funds — a marginal business for providers, so higher fees were excusable. But at nearly HK$400 billion, each percentage point is billions. Keeping fees high was indefensible.

What was the author’s ultimate claim?

MPF shouldn’t exist at all. Citizens’ money should be citizens’ decision, the piece argued; legislation protected MPF companies while citizens couldn’t even preserve capital — hence “forced savings”. Every retirement scheme, state welfare or MPF, lives off future income subsidising current payouts — government-run makes it “legitimate”; MPF is just different packaging.

What is the lesson from 2012?

A “1% cap” was radical in 2012; today it’s common sense. Fee caps and the default investment strategy arrived, proving the “radical” was merely early. The “Ponzi” part is more debatable: any ageing society’s retirement system faces the same maths — the young fund the old. The issue was never the model, but transparency and sustainability.