Proposals to Halve MPF Fees to 1% and Add Annuity Payouts

Rewritten from reporting published in April 2012.

With population ageing high on the agenda, the incoming administration’s policy circle began floating its retirement-policy direction in 2012: halving MPF management fees, adding an annuity option, and pushing for a public debate on universal retirement protection — proposals that would directly affect every worker’s retirement savings.

MPF Fund Fees Comparison: How Much Were Hongkongers Paying in 2012?

In 2012, average MPF management fees stood at about 2%, and a deputy from the chief executive-elect’s campaign office proposed halving them to around 1%. He said he had discussed the idea with industry players, believed it was achievable, and was not worried about public resistance given how unpopular high fees were.

What Is the Annuity Option?

The annuity option would let members decide at age 65 to take half of their contributions as a lump sum and receive the other half as monthly annuity payouts, instead of withdrawing everything at once. The proposal cited Australian and Canadian experience: many retirees there withdrew everything to buy a home, gave the remainder to their children, and then applied for government assistance — the annuity was meant to prevent that outcome.

He acknowledged the MPF system was still immature, with retirees having contributed for only about 10 years and modest balances; but after 25 years of contributions, normal investment returns of about 4–5% could be expected if volatility stayed contained.

What Other Reforms Were Proposed?

Beyond fee cuts and annuities, the incoming administration’s direction included building social consensus on universal retirement protection and gradually scaling back the MPF offsetting mechanism. The proposals at a glance:

The deputy chairman of a social-service council said society broadly accepted the universal-protection model but had no consensus on implementation details. An MPFA non-executive director, who was also a trade-union vice-chairman, said he had raised the feasibility of phased withdrawals at MPFA meetings, though monthly annuity payouts could involve higher administration costs.

How Did the Industry React to Annuities?

The annuity idea was broadly welcomed by the industry. The managing director and chief executive of trustee BCT said annuity products were popular elsewhere and Hong Kong’s cool reception might reflect local attitudes and higher charges, but did not rule out future growth. An HSBC Insurance spokesperson also welcomed the annuity proposal and said sales-team training had been stepped up ahead of the Employee Choice Arrangement’s November launch.