Mergers among Hong Kong MPF providers good news for city’s employees

八月 9, 2016
Eddie Choy

The latest merger among two Mandatory Provident Fund providers last week is good news for Hong Kong employees covered by the pension scheme.

Less is more. There are 2.5 million employees in Hong Kong and we have 15 MPF providers. Even when the latest merger brings the total down to 14, there are still a lot of choices for employees.

The city has too many small providers and half of them do not have a market share of more than 2 per cent. Consolidation among the smaller providers or with the bigger players would help companies achieve a size big enough to enjoy economies of scale and hence provide better service at lower cost.

The latest MPF merger was last week when Canadian insurer Sun Life’s Hong Kong arm agreed to acquire FWD’s MPF and Occupational Retirement Schemes businesses for an undisclosed amount.

Prior to this was the deal announced last September where Manulife said it would buy Standard Chartered Bank’s MPF business.

French insurer AXA last year sold its MPF and certain other retirement businesses to US Principal Financial Group for HK$2.6 billion, marking the largest transaction in the sector since the retirement scheme was introduced in the city in 2000.

The city has too many small providers and half of them do not have a market share of more than 2 per cent

In 2003, Dao Heng Fund Management transferred the administration of its pension business to Principal, following in the footsteps of DBS Kwong On in 2001 and Eagle Star in 2000. In 2002 HSBC purchased the Pacific Century Insurance MPF portfolio.

These mergers are not a big surprise. Besides the fact that small players find it hard to compete, it is also because from April 1 the Hong Kong government is expected to carry out the largest reform since the introduction of the scheme, requiring all MPF providers to offer a default investment fund with an annual fee cap of 0.75 per cent, down from the current average of about 1.5 per cent.

This will add pressure to providers, especially smaller ones, and industry watchers expect more of the smaller players will opt to leave the market.

According to a Gadbury report that tracks MPF data, the top five MPF players have a combined market share of 72 per cent. HSBC ranked first at 29 per cent as of the end of June with HK$607.34 billion of the market, following by Manulife at 19.2 per cent – in the process of buying Standard Chartered Bank’s MPF business, which has a market share 2.5 per cent.

AIA has a 9.6 per cent share, BOCI-Prudential has 7.7 per cent while Principal is at 6.3 per cent.

Sun Life, now ranked No. 7 with a 5.2 per cent share, will gain slightly after taking over FWD which is among the smallest players at 0.56 per cent. After the merger Sun Life will move closer to the sixth largest player BCT at 6 per cent share, according to the Gadbury report.

Gadbury’s data shows there are still eight MPF providers with a market share of less than 1 per cent, making it hard for them to compete. That’s why the merger trend is likely to continue in future.

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