The secret behind MPF switching incentives: the wool comes from the sheep

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

(Note: parts of the original text were garbled; they have been conservatively reconstructed from context.)

As the saying goes: never be greedy for a bargain. With semi-free choice coming, that advice mattered more than ever. After the November 1 Employee Choice Arrangement was confirmed, providers rolled out incentives to attract preserved-account transfers — but regulations meant nearly all incentives came as fund-unit rebates: paper numbers whose fine print deserved scrutiny.

How were rebates calculated? Two main ways.

First: a one-off rebate on the transferred amount. Bigger transfer, bigger rebate — usually with a cap. Some providers advertised eye-catching caps, but what mattered was your account size: rebates of tens of thousands required transfers in the millions.

Second: a discount on fund fees based on the transferred amount. Also paid as fund-unit rebates, with the perk of ongoing fee discounts. Some providers offered both.

Either way, check the asset-valuation date: especially for the second type, providers set specific calculation dates — e.g. monthly or quarterly average asset values — and discounts might apply only to selected funds, not all.

When did the rebate actually arrive?

Don’t assume it lands right after the calculation. Many programmes had waiting periods: some required transferred assets to sit in the account for a specified time before the rebate was paid. Move the assets to another scheme during the wait, and the original incentive was lost.

What was the “gap period” in transfers?

However tempting the incentive, one factor mattered first: the investment gap. When you moved MPF to a new provider, the old one redeemed your funds to cash and sent a cheque to the new provider, which then bought the new scheme’s funds per your instructions — during that gap, the money earned no return and no interest.

What was the ultimate secret?

The wool comes from the sheep. With MPF management fees topping out around 2%, any incentive was inherently limited. Rather than chasing small perks, analyse the product objectively: fund range and suitability, performance and fees, service quality. MPF is long-term investing — don’t let momentary greed wreck your “money future”.