MPF reform call: veteran fund manager lists five flaws and two strengths

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

A veteran fund manager dubbed the “godfather of funds” argued in February 2012 that after 11 years, Hong Kong’s MPF needed reform. His MPF fund fees comparison starts with a stark number: the average fund expense ratio is about 1.8%, high by international standards.

What are the five flaws in the MPF system?

The five flaws are: incomplete coverage, leaving housewives and those retired or jobless before the system began without protection; volatile returns with weak risk management; an average fund expense ratio of about 1.8% that compounds against members; no employee right to choose providers, stifling competition; and employer contributions allowed to offset severance and service payments, confusing retirement savings with employment rights.

What does “HK$740,000 after 20 years” mean?

Assuming a 4% annual return and no further contributions, an average account of HK$151,000 would grow to only about HK$740,000 after 20 years and HK$1.266 million after 30 years. High fees plus volatile returns, he argued, mean the MPF alone may not secure an adequate retirement — hence the case for reform.

Does the system have any strengths?

He credited two strengths: the scheme is now large enough that pooling part of its assets could support more diversified products and steadier returns; and with 70% of employees holding accounts, those accounts could double as a conduit for other social-security items at far lower cost than building from scratch.

For background on MPF fees and how the system works, see the MPF education hub.