Switching Can Void Your Guarantee: MPF Guarantee Funds Cost the Most

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

Two days before semi-portability, a Consumer Council report warned: “low-risk” MPF guarantee funds charged an average 2.24% — up to 3.86%, the priciest of all fund types — yet returned -0.14% over five years. Experts added: transferring benefits can void the guarantee period.

How pricey are guarantee funds?

2.24% on average, 3.86% at most — the highest of any category. But pricey didn’t mean profitable: five-year returns were -0.14% while other categories stayed positive. Guarantee funds promise capital or interest-rate guarantees while still investing in stocks and bonds; the guarantee itself adds extra operating costs, forcing conservative positioning.

Why does switching kill the guarantee?

The guarantee term tracks bond maturities. AMTD’s Kenny Tang explained: guarantee periods follow five- or ten-year bond terms, with principal returned only at maturity. Leaving early means selling at market prices — losses possible. Some plans state outright: fund switches or trustee transfers void the guarantee. Before switching, get the guarantee terms from your original trustee in writing.

Where does the fee actually go?

Two-thirds isn’t the fund manager. HKIFA chief Sally Wong said trust, administration and management eat two-thirds of fund charges; the manager takes the rest. She expected semi-portability’s competition to add downward pressure.

What is the lesson from 2012?

“Low risk” never meant “can’t lose”. In 2012 guarantee funds charged the most, delivered negative returns, and switching voided the guarantee — the year’s most ironic lesson. Before picking one, ask: what are the guarantee conditions? Does switching keep it?