Why only “semi” free choice? Four common myths debunked

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

(Originally a Convoy column.)

“Semi” free choice sounds puzzling — like a half-day tour. But how well do you understand the MPF version?

The Employee Choice Arrangement became law in 2009, but related legislation took time; Legco finally passed the remaining pieces in June 2012, and semi-free choice launched November 1, 2012. From then, every worker could move the employee-contribution balance accumulated with their current employer to a chosen MPF scheme once per calendar year.

Why not full free choice?

Because the law still let employers use the employer-contribution balance to offset severance and long-service payments. Letting the employer portion move freely would have been procedurally tortuous on the era’s admin systems. Full portability hinged on that — and amending the law wasn’t easy, touching many interests, especially employer costs.

With only half, the right deserved cherishing — starting with clearing up these myths.

Myth 1: Monthly contributions go straight to your chosen scheme

Many assumed employers would deposit new monthly contributions directly into the employee’s chosen product, like autopay salary. Wrong. The right covered only accumulated employee contributions; employers still paid employer-plus-employee contributions into their own chosen scheme each month.

Myth 2: Transfers go through your employer

No. Employees chose a scheme themselves, completed the forms and handed them to the new scheme’s provider — licensed MPF intermediaries could advise. For employers, the whole transfer was essentially invisible.

Myth 3: One form does it forever

It wasn’t autopay. Every exercise of the right required a fresh form to the receiving provider each year.

Myth 4: Transfers cost nothing

Beyond comparing the new scheme’s funds, performance, service and fees, mind the exit risks:

1. Investment gap: the old provider redeemed all fund units to cash and posted a cheque to the new provider — during the gap the money was invested in nothing, not even earning interest.
2. Guaranteed-fund terms: check whether transferring affected the guarantee; failing the terms, many guaranteed funds (especially soft-guarantee ones) could deliver negative returns — a nasty surprise.

Semi-free choice was about to launch. Were you ready?