Following is a question by the Hon Chan Kin-por and a written reply by the Acting Secretary for Financial Services and the Treasury, Ms Julia Leung, in the Legislative Council:
The Mandatory Provident Fund Schemes Authority (MPFA) engaged a consultant to study on the trustees of mandatory provident fund (MPF) and administration costs of MPF. The relevant report was published last year, recommending a number of measures to improve the MPF system, including promotion of computerisation in the relevant processing to reduce costs and streamline the workflow, assisting the industry to consolidate their MPF schemes and assisting MPF scheme members to consolidate their accounts. On the other hand, information from MPFA reveals that there were 4.52 million MPF personal accounts in August 2013 and the number of MPF scheme members holding four or more accounts exceeded 180 000, representing respectively a 84% rise and a three-fold increase from those of six years ago, while the weighted average fund expense ratio of MPF (expense ratio) dropped from 2.1% in 2008 to 1.72% in September this year. It is estimated in the report that upon implementation of the aforesaid measures, the expense ratio may fall to 1.12% by 2018. In this connection, will the Government inform this Council:
(a) how the authorities will encourage and assist MPF scheme members next year to consolidate their MPF accounts; whether the authorities will study the introduction of the policy of “one lifelong account” to stipulate that every MPF scheme member may, at any one time, open only one MPF account so as to avoid the situation of holding several accounts resulting from the change of employment; if so, of the details; if not, the reasons for that;
(b) whether the authorities have conducted a review of the Employee Choice Arrangement implemented last year (including ways to encourage MPF scheme members to transfer the accrued benefits derived from their contributions to the MPF schemes operated by the trustees selected by them) and enhance the channels for dissemination of information concerning funds with lower expense ratio (such as index funds) to facilitate the public to make appropriate choices; if they have, of the details; if not, the reasons for that; and
(c) given the diverse views in the community regarding the imposition of a cap on the expense ratio, whether the authorities have studied feasible and effective measures (such as promotion of computerisation in the relevant processing to streamline the workflow and reduce costs) to tackle issues such as the complex workflow of MPF and duplication of resources; if they have, of the study progress; if not, the reasons for that?
(a) Consolidating personal accounts allows scheme members to better manage their MPF investment and helps reduce the administrative cost of trustees, thereby expanding the scope of fee reduction. To simplify the consolidation procedures, the MPFA has developed a new form specially designed for consolidating personal accounts. Scheme members can now consolidate all of their personal accounts simply by completing one single form. Starting from late September this year, the MPFA has sent letters in batches to scheme members with four or more personal accounts (around 180 000 members in total) to encourage account consolidation. Attached with these letters are the above-mentioned application form specially designed for account consolidation, a new leaflet on the steps of account consolidation and points to note, and a list of all trustees with their hotline numbers and addresses. The form for consolidating personal accounts has been uploaded to the MPFA website for use by scheme members.
Meanwhile, the MPFA has launched a series of publicity programmes through various channels, including newspapers, online platforms, the electronic media, and outreach activities at district level, to raise scheme members’ awareness of the benefits of account consolidation and enhance their understanding of related procedures, and to assist them in making consolidation arrangements. The MPFA understands that scheme members have responded positively to the campaign of account consolidation – over 1 000 applications for account consolidation have been received by trustees within one month after the launch of the exercise.
In addition, to contain the proliferation of new personal accounts, trustees have, as requested by the MPFA, included the MPFA’s reminder and a leaflet in the letters sent to departing employees, reminding them to manage their MPF benefits and to consider consolidating their personal accounts.
The MPFA will review these arrangements and their effectiveness in the first half of next year (i.e. six months after the implementation of the campaign), and seek views from various parties for formulating related strategies.
(b) The Employee Choice Arrangement (ECA) not only gives employees more freedom in choosing MPF funds, but also facilitates market competition and exerts pressure on trustees to reduce fees. According to the MPFA’s information, as at November 1, 2013, a total of 145 MPF funds have reduced fees following the launch of ECA on November 1, 2012, with reductions ranging from 1 basis point to 80 basis points, i.e. from 0.6% to 44%. Apart from employees who have applied to transfer to other schemes, those who stay with their original schemes have also enjoyed a fee reduction generally.
ECA aims to give employees greater autonomy in choosing MPF schemes. In selecting MPF schemes, an employee should carefully consider factors such as his/her age, his/her risk tolerance level, the risk level and performance of funds, and the service quality of the trustees. They should not transfer their benefits just for jumping on the bandwagon. The MPFA has included this message in its ECA publicity materials. As ECA has been implemented for one year, the MPFA will review its operation and explore ways to simplify transfer procedures and the transfer application form, making it easier for scheme members to transfer to another MPF scheme if they plan to do so.
With regard to the fees and charges of funds, the MPFA has urged trustees to offer low-fee funds in each scheme and to step up the promotion of these funds. By now, at least one low-fee fund, other than MPF Conservative Funds, have been made available under most MPF schemes. The MPFA has also provided on its webpage a Low Fee Fund List for the easy reference of scheme members. As at November 1, 2013, there were 141 low-fee funds on the list.
(c) The MPF System is an important part of the retirement protection system. Considering that MPF fees will have a cumulative compound effect on employees’ MPF accrued benefits, the Government considers it necessary to take decisive measures to facilitate further reduction in MPF fees. After discussion with the Government, the MPFA is now studying a number of specific reform measures, including the proposal of launching “core funds” with a fee control element. We look forward to the early completion of these studies, whereupon a public consultation on the proposals can commence.
Meanwhile, the MPFA will continue to roll out measures to reduce trustees’ administrative costs, including the launch of an electronic payment and clearing system in mid-2014. The system will allow electronic transfer of accrued benefits among trustees in accordance with scheme members’ instructions. It will also reduce certain unnecessary procedures and increase the scope of fee reduction by trustees.