Should the Market Set MPF Fees? The Industry’s Case

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

The Employee Choice Arrangement took effect on 1 November 2012, with fee cuts widely expected and the MPFA mulling maximum-fee rules. But Sun Life Financial chief executive Leslie Lo pushed back: heavy-handed government control would hamstring practitioners — MPF fees should be market-led.

What was the industry’s case?

Small scale means high costs. Lo noted that of Hong Kong’s roughly HK$300 billion in MPF assets, HK$60 billion sat in cash and deposits earning little; scheme rules stopped practitioners giving full long-term financial advice. Looser regulation, he argued, would lift returns.

What did international comparison show?

Eleven years old — still in kindergarten. EY executive director Joesef Pilger told the same event that comparable retirement schemes internationally typically need 30 to 40 years to mature. MPF was eleven, with a quarter of Australia’s scale — higher costs and lower efficiency were inevitable.

What is the lesson from 2012?

The “market-led” versus “government-capped” tug-of-war started in 2012. Industry said small scale meant high fees; the public said monopoly meant high fees — each half right. Years later, fee caps and the default investment strategy arrived, proving one thing: market-led doesn’t mean unregulated, and regulated doesn’t mean strangling the market. The balance is the answer.