Is now the right time to reform MPF for savers' benefit?
With more power in savers' hands, is now the time for reform so scheme achieves its original goals?
It was only after more than three decades of heated debate that the government launched the Mandatory Provident Funds in 2000.
Now, 12 years on, Hongkongers have about HK$400 billion in assets invested in the compulsory savings programme. But as the funds' size has mushroomed, so has controversy surrounding its high administrative fees, dismal returns and the fact employers, rather than employees, have the biggest say in who manages the funds.
While calls are growing for the scheme to be scrapped and for the government to implement a new pension scheme, there are also voices arguing that the MPF can be reformed to fulfil its original goal of providing for the city's ageing population. But what kind of reforms would make the scheme work?
The Mandatory Provident Fund Schemes Authority (MPFA) released a long-awaited report last week which set out recommendations for change and made comparisons with other countries' pension schemes.
To no one's great surprise, Hong Kong's fund-expense ratio - which measures the fees and expenses of an MPF fund as a percentage of fund size - is higher than that in four countries with which it was compared.
The average ratio is 1.74 per cent for Hong Kong, with administrative costs averaging 0.75 per cent and investment management fees 0.59 per cent; the rest goes on sponsor fees, trustees' profit, rebates and other expenses. By contrast, the fund-expense ratio in Mexico's pension system is 1.32 per cent, that in Australia is 1.21 per cent, that in the United States 0.83 per cent and that for Chile 0.6 per cent.
