Same 0.75% line, two different fates: Britain’s default funds average 0.48% — Hong Kong’s DIS hugs the ceiling

The proposition: the same cap, a different destiny

When the UK government reviewed the charge cap on auto-enrolment default funds, it decided to leave the 0.75% cap exactly where it was — no need to cut. The reason: the market was “working competitively”. Members paid an average of just 0.48%, far below the ceiling. The evidence came from the Pension Charges Survey 2020, covering 14.4 million scheme members, every one of them in a scheme charging below the cap (source: UK government response, via Pinsent Masons).

Hong Kong? The Default Investment Strategy (DIS) cap also starts at 0.75% — and the real cap is 0.85%. But members actually pay an average of about 0.77% (MPFA Chairman Ayesha Macpherson Lau, Sing Tao interview, late September 2026). That is 0.08 percentage points away from the legal maximum.

Same 0.75% line. In Britain it is a ceiling — the market average uses barely two-thirds of it. In Hong Kong it has become a floor, with actual charges walking right up to the limit.

The X-ray: the two caps side by side

Hong Kong’s 0.95% → 0.85% cut came entirely from the out-of-pocket layer (0.20% → 0.10%, a side effect of the eMPF platform). The 0.75% management fee — 88% of the cap — has not moved since DIS launched in April 2017. Britain’s logic for keeping its cap was “an average of 0.48% proves the market competes on its own”. Hong Kong’s reality: an actual average of 0.77% against a 0.85% cap. The market does not compete; it queues at the ceiling.

DIS is now the system at scale: 3.7 million accounts (32.9% of all accounts), HK$169.61 billion (11.1% of total assets) — MPFA annual report 2025-26. In other words, the largest cohort of members who never had to choose anything is precisely the cohort charged closest to the legal maximum.

The compounding toll: the thirty-year bill for 0.29 percentage points

0.77% versus 0.48% — a gap of 0.29 percentage points. It sounds like nothing. Translated into human terms (illustrative calculation: HK$5,000 monthly contributions, 7% gross annual return):

• 10 years: gap of about HK$13,231 (roughly 1.6 months of contributions)
• 20 years: gap of about HK$83,785 (roughly 1.7 years of contributions)
• 30 years: gap of about HK$303,112 — roughly 89% of the average balance of HK$338,950, or about 37.9 months of living expenses at HK$8,000 a month. Over three years of retirement spending.

Per member, that is 0.29% × HK$338,950 ≈ HK$983 a year. Across the whole DIS book: HK$169.61 billion × 0.29% ≈ HK$490 million a year, quietly draining out of 3.7 million “do-nothing” accounts.

If the year-end review replays the 0.95% → 0.85% script — touching only out-of-pocket expenses, leaving the 0.75% management fee alone — even another 0.10pp cut returns only about HK$102,295 over 30 years. The big layer (88% of the cap) is what bleeds members’ wallets, and it has been frozen for eight years.

The way out: the only question the year-end review has to answer

The MPFA’s holistic DIS review is due by the end of 2026, covering three axes: the management fee cap, the diversified investment principles, and the de-risking mechanism (MPFA “Reviews and Reforms” page). The Chairman’s 28 June 2026 blog pledged to examine fee-reduction room including investment management fees, with results targeted by year-end.

Before the review lands, members need ask only one question: the 0.75% management-fee layer, frozen for eight years — does it move this time? If it does not, any “review” is just a rerun of the 0.95% → 0.85% playbook: shave the out-of-pocket layer again, then declare the fee cut a success.

Until the answer arrives, members still hold three cards (institutional explanation, not investment advice):

1. DIS remains the cheapest default option. The market average fund expense ratio is 1.36% (HSBC, May 2026 document); DIS’s actual average of about 0.77% still beats it by half the street. The benchmark is not Britain — it is the expensive funds inside your own scheme.
2. The Employee Choice Arrangement resets every calendar year (1 January). Even within DIS, expensive schemes charge close to the 0.85% cap while cheap schemes charge tens of basis points less — the employee’s contribution portion can move once a year.
3. A TVC account can hold the Core Accumulation Fund directly. TVC money is not bound by the statutory age-50 de-risking; it can hold 100% CAF before age 65, buying the global equity-bond recipe at DIS prices while sidestepping the mechanism that pushes money into bonds year after year.

Execution constraints as always: T+1/T+2 forward pricing makes every transfer a blind buy and sell; no large instructions around the 27–28 October rate decision week.

The charge cap was invented to protect people who never chose anything. Britain proved the cap can be just a ceiling — when competition genuinely exists. Hong Kong has proved something else: when competition does not exist, the cap becomes the floor, and everyone stands on it to charge. The question the year-end review must answer is not “what should the cap be”, but “why has everyone been charging at the ceiling for eight years, and why does nobody find that strange”.