Charges for Hong Kong’s mandatory provident fund (MPF) could be reduced if fixed administration fees were implemented, says consultancy firm Towers Watson.
Philip Tso, director at Towers Watson, Investment Services, Hong Kong, says there has been a reduction in MPF charges compared to ten years ago, adding that the current charges are still reasonable compared to other retail funds.
Mr Tso states that current MPF charges are about 1% to 2% of the net asset value. That comprises several components including investment manager fees, administration fees, custodian fees and service fees. Of these, administration fees account for the largest proportion at about 50%.
To reduce MPF charges, Mr. Tso suggests administration fees should be charged on a fixed rate basis that would only be adjusted based upon inflationary trends.
Hong Kong’s government deferred the launch of the employee choice arrangement (ECA) last year, which Mr. Tao believes would have created some healthy fee competition. He added that the MPF scheme has delivered strong performance over the past ten years with a return of 11% for equity funds and 6% for mixed asset funds.
The MPF scheme had total assets of HK$365 billion (US$46.79 billion) in 2010. Mr. Tao expects this to increase to HK$1 trillion by 2020.