A non-political group has voiced concern over the Hong Kong government’s decision to delay a provision allowing employees to choose their own Mandatory Provident Fund (MPF) scheme.
The Hong Kong Retirement Schemes Association (HKRSA) – a body representing the interests of employers and MPF service providers, and therefore the majority of employees in MPF schemes – expressed surprise that the government had opted to postpone the MPF Employee Choice Arrangement (ECA), initially planned for April next year.
The arrangement would have enabled employees, rather than employers, to choose an MPF scheme and service providers – such as banks, insurance companies and fund houses – for their own savings component. This would have introduced greater competition, inevitably driving down providers’ fees and charges.
By way of justification, Hong Kong undersecretary for financial services and the treasury, Julia Leung Fung-yee, cited the need for legislation to address concerns over fund mis-selling, which has been a hot topic in the city after Lehman Brothers mini-bond investors suffered losses in the wake of the bank’s collapse two years ago.
Yet as long ago as October 2008, Hong Kong chief executive Donald Tsang pledged to introduce greater choice within the MPF scheme to promote competition; since then the MPF Schemes Authority (MPFA) has been working with the industry on training, education and system requirements to accommodate choice.
With this latest announcement the government says it is hopeful a new law governing mis-selling can be formulated before the end of next year.
But the HKRSA notes that the issue of mis-selling has been known about for quite some time and suggests it should have been factored into the consulting and decision-making process already.
“We think that the introduction of ECA should proceed as soon as possible, as much of the improvement to the system and heightened interest in MPF amongst the members of schemes will not happen until ECA is introduced,” HKRSA chairman Ka Shi Lau said.
Industry sources agree that the regulators should have started reviewing this at an earlier stage.
“The irony is that members will ultimately be disadvantaged by this delay – the very people that the regulators serve and protect – as choice will lead to competition, and in turn drive down costs and promote more benefits to members, such as a wider array of funds to choose from within the MPF scheme,” said a source who preferred to remain anonymous.
As things stand, employers maintain control of their contribution component in the MPF scheme, enabling them to offset severance/long-service payments against part of accrued MPF benefits.
Another source added: “An employee should have the right to transfer all of the accrued benefits [both the employer and employee component]. But no changes have been made in this regard.”
It has also been suggested that a single government department needs to take responsibility for pensions and retirement policy in Hong Kong. At present the Financial Services and Treasury Bureau, the Elderly Commission and the Labour and Welfare Bureau all have an interest.
The MPFA declined to offer further explanation of the decision to delay the ECA, referring only to a previously issued release stating it would “continue to pursue other measures to help strengthen employees’ ability to choose their own trustee and scheme, and to increase market competition”.