Should you switch MPF schemes? Four factors to weigh first

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

Under the Employee Choice Arrangement, employees gained the right to transfer the accrued benefits from their mandatory contributions in the current contribution account — once per calendar year, in a full lump sum — to a trustee and scheme of their choice. But having the right to switch is not a reason to switch.

Can you simply stay put?

Yes. Employees were not obliged to exercise the transfer right, nor to do it immediately. If the employer-chosen trustee and scheme were satisfactory, leaving everything untouched was perfectly fine.

What risks does switching carry?

• Investment gap: a short uninvested window during transfer, risking “selling low, buying high”
• Unpredictable markets: don’t switch on short-term price swings
• Unknown-price dealing: funds trade at unknown prices — you cannot name your buy/sell price
• Guaranteed-fund terms: transferring may breach guarantee conditions, forfeiting the guaranteed return

What four factors should you consider before switching?

• Product (scheme and funds): breadth of fund choices and fit with your needs
• Trustee service: whether fund information is detailed, clear and easy to access
• Fund fees: compare fees among similar funds
• Personal factors: investment goals, life stage, years to retirement, risk tolerance

Think carefully before deciding — never switch for switching’s sake or follow the herd. Especially when the contribution account has built up a sizable balance, the first transfer involves a large sum and deserves extra caution.