MPF Switching Isn’t Always a Win: BCT Expects Only 10% to Move Early

With the Legislative Council’s work on MPF Employee Choice nearing the final stretch, employees could choose their trustee freely from November 2012. In December 2011, BCT Group’s managing director and CEO (劉嘉時) cautioned that switching trustees “does not necessarily pay off” — conversions crystallise losses and incur handling fees, so she expected fewer than one in ten members to switch in the early days.

Should I switch trustees under MPF Employee Choice?

Not necessarily. Switching means selling assets first and buying into another fund, crystallising losses and incurring handling fees. Citing Australia’s experience — only 20 to 30 per cent of members switched after the market opened — BCT Group expects fewer than 10 per cent of Hong Kong members to switch early on. Do your homework first, or the move may cost more than it gains.

Switching at a Loss Means Paying to Crystallise It

The MPFA reported that MPF as a whole lost nearly 4 per cent in November 2011, well below October’s 6.64 per cent gain, with a cumulative loss of 8.67 per cent over the first eleven months of the year. Liu noted that anyone switching while their MPF assets were in the red would pay upfront — the realised loss on selling assets, plus any handling fees for changing trustees.

Five-Point Checklist Before Switching

Liu urged members to do their homework:

1. What the costs and charges are;
2. The new trustee’s product offerings;
3. The asset classes invested in;
4. The effective date;
5. Their own risk tolerance.

Product design could become the main driver of switching decisions, she added, but MPF is tightly regulated, so overly innovative or complex products were unlikely: “This is retirement protection — the authorities will not allow trustees into excessively risky investments.”

Murky 2012 Outlook Dampens Switching Appetite

A slow US recovery and Europe’s debt problems would weigh on members’ willingness to switch. Liu hoped regulators would do the educational groundwork, and said BCT would strengthen its guidance as a trustee.

Compare trustees’ fund fees and performance on mpf.hk’s fund comparison before deciding whether to switch.