The fee-cut roadmap: from levy mechanism to employee choice, in three steps

Cutting MPF fees entered the legislative pipeline in October 2011: Secretary for Financial Services and the Treasury Chan Ka-keung told the Legislative Council’s motion-of-thanks debate on the Policy Address that the government would keep promoting competition in the MPF market to drive fees down. Unlike the previous day’s “semi-portability” timetable, the emphasis here was on system costs — high fees stemmed not only from weak competition but from layered institutional charges.

What will bring MPF fees down?

Lower MPF fees rest on two legs: competition, by letting members vote with their feet through the Employee Choice Arrangement; and lower system costs, centred on an automatic levy-adjustment mechanism for the MPF compensation fund. In October 2011, Chan said the government would put the automatic-adjustment proposal to LegCo’s Financial Affairs Panel in November to help reduce the average fund expense ratio — once automated, the levy would pause when the fund was flush and resume when it ran low, no longer hostage to manual wrangling.

What is the legislative timetable?

What reviews come after the fee cuts?

The government said it would stay in close contact with the MPFA on reviews to improve the system, including groundwork for eventual full MPF portability and for phased or early withdrawal in specified circumstances. In other words, the late-2011 legislation was only the starting point: automate the levy, regulate the intermediaries, then hand choice to employees. For how fees compound against long-term returns, see the MPF education hub.