The 32.9% vs 11.1% Paradox: Hong Kong’s Cheapest MPF Option Holds the Smallest Balances

The Default Investment Strategy (DIS) is one of the cheapest and most consistently rewarding options in Hong Kong’s MPF system. Its Core Accumulation Fund has delivered an annualised net return of 6.5% since its April 2017 launch (as at 20 August 2026, disclosed by MPFA chairman Ayesha Macpherson Lau in late September), and its actual average fee is just 0.77% — below the statutory 0.85% cap.

Yet the MPFA’s 2025-26 annual report (published 1 September 2026) exposes a fault line: 3.7 million MPF accounts are invested in DIS funds — about 32.9% of all MPF accounts — but they hold only HK$169.61 billion, roughly 11.1% of total MPF assets.

One-third of accounts. One-tenth of assets. The cheapest option in the system is held, overwhelmingly, by the smallest balances.

The x-ray: how deep the gap runs

One division tells the story: HK$169.61 billion divided by 3.7 million accounts gives an average DIS account balance of HK$45,841.

Set that against the system average: MPF Ratings estimated on 24 September 2026 that the average member’s account balance stood at HK$343,242. Even if every DIS account belonged to a different member holding a single account, the average DIS holder would still own less than 14% of the system average.

(Sources: MPFA 2025-26 annual report, as at 31 March 2026; MPF Ratings estimate, 24 September 2026)

The fee comparison is harsher. The DIS fee cap started at 0.95%, fell to 0.85% after the eMPF platform launched, and the actual average fee is now only 0.77% (per the MPFA chairman, late September). The market-wide average fund expense ratio sits at about 1.36% (HSBC document, May 2026). Most of the money in the system is paying nearly 80% more in management fees than the DIS charges.

And performance? The Core Accumulation Fund’s 6.5% annualised return since launch beats the 1.8% annualised inflation over the same period. MPFA provisional data to end-August 2026 shows DIS funds returned 12.4% over the past 12 months, while equity and mixed-asset funds have annualised just 4.8% and 4.4% respectively since the MPF system’s inception. The “do nothing” option has beaten roughly nine in ten active choosers over the long run — as this column demonstrated with data on 28 September.

There is even execution dispersion inside DIS: the best-performing DIS fund made 20.1% over the past 12 months, the worst 11.2% (MPFA provisional data, end-August 2026). Same statutory reference portfolio, nearly 9 percentage points of difference across trustees. The fee cap controls price; it cannot control tracking error.

Why big balances stay out: three structural layers

The first layer is design. DIS is legally the default destination for contributions with no investment instruction: since 1 April 2017, members who give no direction are swept into DIS automatically. Those members are mostly new joiners who never made a choice — naturally small accounts. Members who had already built large balances before 2017 defaulted elsewhere, and nothing in the system moves them across unless they act. The default catches newcomers; it has no mechanism to collect the incumbents.

The second layer is performance-chasing culture. GUM’s August report: US equity funds recorded net inflows of over HK$12 billion year-to-date (a fifth consecutive month), while Hong Kong equity funds suffered net outflows of over HK$10 billion. Holders of large balances are busy chasing returns and switching funds — one BCT programme disclosed a member switching funds 110 times in half a year — rather than counting fees. The irony: the “active management” they chase is precisely the component that fees eat away over time.

The third layer is perception. A product nicknamed the “lazy fund” reads as something for people who don’t understand investing. Actively picking funds confers a feeling of being in charge of one’s wealth — a feeling that costs 0.59 percentage points a year.

The compound toll: what 0.59 percentage points means in human terms

0.59 percentage points (1.36% minus 0.77%) sounds trivial. Translated:

• A member with a HK$1 million balance pays an extra HK$5,900 a year in management fees — before compounding.
• On the average balance of HK$343,242, the extra cost is about HK$2,025 a year.
• An illustrative scenario — HK$5,000 monthly contributions, 7% gross annual return: the fee gap compounds to roughly HK$27,000 after 10 years, HK$179,000 after 20 years, and HK$665,000 after 30 years — nearly twice the average member’s balance.

The 3.7 million DIS accounts are already saving exactly that money. The other 88.9% of assets keep paying it.

The defensive blueprint: four steps

One, check. Log in to the eMPF platform or pull up your fund fact sheets, and find the fund expense ratio of every fund you hold. Compare it with 0.77%. The gap multiplied by your balance is your annual “activeness tax”.

Two, move. The Employee Choice Arrangement (the “semi-portable” option) lets you transfer the accrued benefits from your current employer’s contributions to a scheme of your choice once a year — no employer involvement needed, and it exists today. Full portability is coming: phase one (covering employees who joined after 1 May 2026) is targeted for next year, with phase-two legislation in progress.

Three, guard the unknown price. MPF fund switches execute at T+1/T+2 forward prices — you never know the dealing price in advance. Split large switches into tranches and avoid rate-decision weeks: the US Federal Reserve meets on 27–29 October, and volatility is amplified in a hiking regime.

Four, wait or act. The MPFA is conducting a comprehensive DIS review — fee cap, the age-50 de-risking trigger, and the equity-bond mix — aiming to finish next year. The cap could fall further. But “waiting for the review” is no reason to keep paying 1.36% when the 0.77% option exists today.

The other side of the fault line is opportunity: with a third of all accounts already proving that the default beats active choosing, the only remaining question is when your money moves across.

Data notes: DIS account and asset figures from the MPFA 2025-26 annual report (as at 31 March 2026); average balance and return estimates from MPF Ratings, 24 September 2026; Core Accumulation Fund returns and fee data from public statements by the MPFA chairman in late September 2026 (via Sing Tao Headline); the 1.36% market-average fund expense ratio from an HSBC document, May 2026; compounding scenarios are illustrative, assuming 7% gross annual return and HK$5,000 monthly contributions, before contribution caps and return volatility.