Why Did the Offsetting Mechanism Shackle MPF Reform?

Why Was “Offsetting” the Biggest Reform Obstacle?

Sun Life’s Luk Kwai-sim noted that fund managers’ fees were only a third of MPF charges — the rest was administration. The offsetting mechanism served employers’ interests, and since employers bore most admin work, they expected to control provider choice; true “follow the employee” portability required legislating offsetting away — which employers would fiercely oppose.

Why Were Overseas Fees Lower?

Most overseas pension systems charged under 1% a year, nearly half Hong Kong’s 1.8% average. Consultants suggested copying Australia by splitting administration and management fees between employers and employees, but Luk feared it would just push employers toward the cheapest administrators regardless of performance.

What Was the Fundamental Fix?

Luk said the real answer was open fund choice — as in Australia, where members could pick any provider’s funds whoever their trustee was, spurring fee cuts while avoiding dud trustees. But Hong Kong’s MPF had only HK$365 billion in assets — a tenth of Australia’s and a twentieth of America’s — so fee room needed asset growth first.
Until offsetting is reformed, workers can still shop within the current framework — compare MPF funds on fees and performance.