MPFA Finally Acts — Proposes Capping MPF Fees

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

Less than two weeks before MPF semi-portability, the MPFA moved to propose a cap on MPF charges and require every trustee to offer lower-fee funds such as index funds — pressing trustees to cut fees. Lowering MPF charges was finally moving from talk to action.

Why did the MPFA act?

Trustees pleaded limited room; no price war appeared. Semi-portability should have sharpened competition, but trustees said the new regime raised costs and left little room for cuts — and no management-fee price war materialised. The MPFA had to play another card.

What did the chief executive say?

“Fees haven’t fallen fast enough, or deep enough!” Chief executive Diana Chan told an interview the average fund expense ratio had fallen from 2.1% in 2008 to 1.73% by September 2012, yet calls for deeper cuts persisted. High MPF fees eroded workers’ returns.

What were the boldest proposals?

Two fundamental reforms: a fee cap plus mandatory low-fee funds. Consultants found basic structural reform could cut costs significantly; the boldest ideas were a fee cap and forcing trustees to offer low-fee fund choices. Other proposals: digitising services, consolidating accounts. The consultants’ report was due in late November, then to the board, then to government — fundamental reform needed government decision and public consensus.

What did academics say?

Legislation takes time — over a year. A CUHK economist said legislating would take at least a year and a half; he believed semi-portability competition would drive cuts. Chan likewise hoped semi-portability would lower fees, expecting about a year before reviewing results.

What about full portability?

Still under study. Chan said the MPFA would fully study full portability — letting employees choose trustees for both employer and employee contributions — with ideas including a central database and consolidating contribution accounts to one or two.

What is the lesson from 2012?

A cap is a start, not the finish. 2012 marked the MPFA’s first serious talk of capping fees — from persuasion toward legislation. But the economist’s point stands: legislation takes a year and a half; competition is the instant fee-cut medicine. Lowering MPF charges walks on two legs: legislate slowly, switch now.