Will MPF switching really take off? Australia’s experience says maybe not

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

Legislative Council passed the MPF amendment bill in late June 2012, with the Employee Choice Arrangement — “semi-portability” — and a new statutory regime for intermediaries taking effect on 1 November that year. Media attention centred on semi-portability because it affected more than 2.5 million workers after four years in the making. Workers and the public hoped it would force providers to slash management fees; providers and intermediaries hoped for new business.

What is semi-portability?

Formally, the Employee Choice Arrangement lets workers conditionally change the trustee and scheme of designated MPF contribution accounts, moving all accrued benefits in one lump sum to the new scheme. At the time, a typical worker held three MPF accounts: the current employer’s mandatory contribution account (employer’s choice, not transferable), the employee’s own current-employment mandatory account (transferable once a year under the new scheme), and accounts from previous employments.

As of 31 May 2012, the MPFA had 19 registered trustees, 40 MPF schemes and 448 constituent funds — about 11 funds per scheme on average, from low-risk guaranteed funds to high-risk single-market funds, enough for workers to build suitable portfolios.

Why the switching wave might not come

When Australia let workers choose their own superannuation investments from July 2005, fewer than 5 per cent switched fund companies in the first year, and fewer than 15 per cent after three years. Hongkongers might be more proactive, the original columnist conceded, but he doubted many would switch voluntarily — predicting most future switchers would be talked into it by intermediaries, a “forced portability” far from the legislation’s intent.

Unlike other semi-portability coverage of the period, this piece poured cold water on expectations: an open system doesn’t mean everyone uses it, and the real switching wave could be intermediary-driven rather than worker-led.