Why the 2012 ‘semi-portability’ reform was meant to cut MPF costs

In May 2012, MPF fees were the talk of the town: an average charge of 1.74 per cent on a pool of just HK$365 billion. The outgoing chairman of the Hong Kong Federation of Insurers said fees were high because the member and asset base was small — and would fall as the market matured. The Employee Choice Arrangement, due later that year, was seen as a key efficiency lever.

What is the Employee Choice Arrangement?

The Employee Choice Arrangement — “semi-portability” — was a 2012 MPF reform letting employees transfer the accrued benefits of their current employment’s employee contributions to a scheme of their choice, once a year as a lump sum. As of May 2012, it was expected to launch that November, giving members more control over their MPF.

Why was semi-portability expected to cut fees?

The Investment Funds Association chairwoman noted it would lift operating efficiency: service providers could share data, and consolidating accounts would become easier. Greater efficiency, on top of a growing asset base, was the twin engine expected to drive fees down.

The 2030 fee projection

The projection rested on about 60 per cent of charges being fixed costs: as assets grew, fixed costs would be spread thinner. The industry believed steep fee cuts were the long-run trend as the market matured.