The core fund is not capital-guaranteed, but its 0.95% fee is the market’s lowest: MPFA promises a review in three years

In November 2017, an MPFA non-executive director appeared on a television programme to discuss the coming Default Investment Strategy — the core fund. Two points in his remarks deserved employees’ attention: first, the core fund was not capital-guaranteed — the fee cap was meant to lift net returns, not to guarantee them; second, the 0.95 per cent fee cap made it the cheapest global fund in the market at the time, and the authority had committed to reviewing it after three years, with room to cut further in the long run.

The hard numbers

MPF accounts with no investment instructions would be moved automatically into the default strategy, involving about HK$13 billion in contributions.

“Not capital-guaranteed”: the three most important words

The director said the strategy was designed around the goal of “saving for retirement”, automatically de-risking near retirement age — but stressed it was not capital-guaranteed. His explanation was candid: markets were unpredictable and returns could not be assured, so the fee cap was there to raise net returns.

The sentence deserves unpacking: the fee cap “plugs the leak”; it does not “guarantee the water level”. A 0.95 per cent ceiling saves the costs certainly deducted each year; market-driven returns remain guaranteed by no one. For workers used to guaranteed funds, that was a psychological hurdle to cross.

Review in three years: the second act of fee cuts

The authority would review the strategy three years after implementation, he said, and he believed there would be room to cut further over time. This echoed his remarks on another occasion: if administrative costs could be addressed, he hoped the expense ratio could be lowered again within three years. On a longer timeline, the core fund’s 0.95 per cent was never the destination — it was the first anchor in a long fee-cutting campaign.

Offsetting: the MPFA “stands ready”

On the government’s mooted abolition of MPF offsetting, the director said the authority would go along with any policy change and was already prepared to accept new arrangements. The regulator’s statement was restrained — no comment on the policy itself, only confirmation of operational readiness. But its timing, in late 2017, was itself a signal: abolishing offsetting had moved from “whether” to “how”.

Context: a HK$650 billion system whose fees remained the top grievance

The MPF had run since December 2000, accumulating HK$650 billion in assets. That a system managing HK$650 billion still drew perennial public anger over fees was precisely why so much hope was placed on the core fund: a fee-capped, highly standardised option that would set a reference floor for charges across the market.

Myth-bust: does “cheapest” mean “right for you”?

At 0.95 per cent it was the cheapest global fund in the market — but “cheapest” did not mean “best fit”. The core fund was one-size-fits-all: an automatic age-based glide path between equities and bonds, suited to workers who did not want to manage investments and could accept market volatility. It would not adjust for your other assets, contribution horizon or personal risk appetite. Low fees were an advantage, but only one question on the fund-selection paper.

What it meant for employees

The short report was effectively a user manual: the core fund would de-risk automatically, cap fees and face review in three years — but it was not capital-guaranteed. The homework for employees in late 2017 was singular: find out whether automatic switching would happen to you, and whether your risk tolerance could keep up if it did.

Action list

• Confirm whether your accounts carry investment instructions — about HK$13b in no-instruction contributions would switch automatically
• Understand “not capital-guaranteed”: when markets fall, the core fund falls too
• Compare the 0.95% cap with your current funds’ fees and work out the annual saving
• Note the three-year review: fees could fall further, so reassess then