Think twice before switching MPF: volatile markets can cost you

This article is a rewrite of a report from August 2013.

The Employee Choice Arrangement lets members switch trustees — but switching isn’t costless. Bank Consortium chief executive Lau Ka-shi warned in August 2013: transfers take time, so avoid switching in volatile markets — the sell-and-rebuy gap can mean real losses if timing goes wrong.

What are the risks of switching MPF?

Switching trustees takes about three to four weeks: accrued benefits are sold, then repurchased in the new scheme, leaving money out of the market in between. If markets swing sharply during the gap, members can end up “selling low and buying high” — with the loss on them.

When shouldn’t you switch?

• In volatile markets: the investment gap is riskiest then
• Before comparing properly: fees, performance and service all need checking
• For short-term sweeteners: welcome offers are one-off; long-term fees and performance matter more

Pre-switch checklist

• Compare expense ratios: like-for-like across peers
• Compare long-term net returns: at least three years of data
• Know the transfer time: allow three to four weeks; avoid volatile markets
• Check fund choice: does the new scheme’s range suit your needs

Switching is a right, not a duty. Calm markets and thorough comparison make the right moment.

Switching arrangements are explained in the MPF education guides.