On the eve of the core fund: HK$13b in “orphan” contributions await their fate, and the MPFA cannot say how many will choose it

In November 2017, with the Default Investment Strategy — the so-called core fund — about to launch, an MPFA non-executive director admitted in an interview: it was impossible to predict how many members would actively choose it. The report was short, but it nailed a key reality — the real battleground for the core-fund reform was never the no-instruction accounts, but whether millions of employees who had made choices would switch.

The hard numbers in the report

The director’s point: no-instruction cases were a minority — only about HK$13 billion of MPF assets had no instructions, roughly 2 per cent of the total. In other words, the automatic-switch mechanism covered only a small corner: for the other 98 per cent of assets, the choice remained with employees.

The 0.95% cap: the MPFA’s selling point

With the core fund’s expense-ratio cap at 0.95 per cent, he believed it would appeal to those who considered MPF fees too high. And if administrative costs could be tackled, he hoped the ratio could be cut further within three years. Two messages here: first, 0.95 per cent was among the lowest fee levels in the market at the time; second, the “cut again in three years” expectation framed fee reduction as a long campaign, not a launch-day event.

Age adjustment and market volatility: the design intent

The report noted the core fund would adjust its strategy with members’ ages — higher risk when young, automatically de-risked near retirement — the core design of the default strategy. With global markets volatile and the strategy able to invest worldwide, the director stressed that volatility was inevitable, but the MPF was a long-term investment, professionally managed with proper diversification.

Context: the strategy was already law from 1 April 2017

Placed on a timeline: the DIS legislation had passed in 2016, and from 1 April 2017 every MPF scheme had to offer a highly standardised default investment strategy. By late 2017 the question was no longer “will it launch” but “how many will use it, and how far will fees fall”. The director’s “hard to predict” reflected genuine regulatory uncertainty: automatic switching handled 2 per cent of assets; the other 98 per cent depended on employees comparing and switching on their own — and Hong Kong workers were famously “lazy” about managing their MPF.

Myth-bust: does “automatic switching” mean everyone ends up in the core fund?

This was the most common misreading of the year. Automatic switching applied only to accounts with no investment instructions — about HK$13 billion, 2 per cent of the total. Accounts with instructions, however pricey or poorly performing their funds, would not move into the core fund unless their holders acted. Whether the core fund’s fee-cutting effect spread depended on employees taking action, not on the law taking automatic effect.

What it meant for employees

The report’s real message for employees hid in the director’s advice: “when members receive the notice, they should check how many MPF accounts they have and which funds they chose.” In late 2017, trustees were writing to all contributors — a once-in-a-generation prompt to take stock of one’s MPF. Whether the core fund suited you depended on your age, risk tolerance and your current funds’ fees — not on the four characters “0.95% cap”.

Action list

• When the trustee notice arrives, take stock: how many MPF accounts do you hold, and in which funds?
• Compare your current funds’ expense ratios with the core fund’s 0.95% cap
• Assess whether the age-based de-risking fits your retirement timeline
• Remember: only no-instruction accounts switch automatically — everyone else must act