MPFA likely to get new chairman
If Henry FanÆs contract is not renewed, what does that signal for reforming Hong KongÆs pension system?
Executives among Hong KongÆs pension service providers expect Henry Fan Hung-lingÆs two-year contract as chairman of the Mandatory Provident Fund Schemes Authority (MPFA) will not be renewed when it expires this March.
Fan is managing director of Citic Pacific and is currently being investigated by the Securities and Futures Commission over the corporationÆs HK$15.5 billion loss on unauthorised currency trades last year.
Since the loss was revealed in October, he suspended activity as MPFA chairman as well as other roles such as director at Hong Kong Exchanges and Clearing.
The SFCÆs initial investigation had focused on Citic Pacific but this week it announced it is expanding it to include Fan, along with 17 other board members and executives at Citic Pacific.
That has convinced MPF service providers that he wonÆt return to MPFA û which, along with the deteriorating economy, throws into question the reforms he had trumpeted at the start of his tenure.
The final decision to renew his contract is up to Donald Tsang, chief executive of the Hong Kong Special Administrative Region, who has yet to broach the subject in public.
In the summer of 2007, Fan proposed MPF members be allowed to choose the trustee of their contributed funds. This remains controversial. FanÆs vision was to spur competition and therefore drive down fees, which he also suggested were too high and should decline as assets in the system grew. The reform was also designed to empower members regarding how their assets are managed and by whom û and therefore serve as an incentive for them to improve their awareness of how MPF works, and the need to invest long term for retirement.
Some service providers remain sceptical. Peter Crewe, senior vice-president and regional director at AIG Global Pensions in Hong Kong, fears choice will introduce complexity too soon. He would rather see the MPFA and service providers delay the plan in favour of more investor education.
Member choice will also add to administrative costs and may not, therefore, help drive down fees, note MPF providers. Besides, last year saw many providers lower fees, or introduce new fund choices with reduced fee schedules, as a natural result of competition, notes Lau Ka-shi, CEO at Bank Consortium Trust.
Others such as HSBC InsuranceÆs Hong Kong managing director, James Sadler, believe member choice is a necessary reform for a system that has remained static since its introduction eight years ago. ôPushing ahead with member choice is key for the development of MPF,ö he says, although this must go hand-in-hand with continued investor education.
Industry execs agree that the systemÆs contribution levels and salary caps could also do with an overhaul, as they reflect worker remuneration from nearly a decade ago, but this is not on the governmentÆs agenda.
MemberÆs choice, on the other hand, seems likely to move ahead. Donald Tsang supported it in his last budget speech, and the MPFA has continued to work out details to submit to the Legislative Council. Legco may see a bill within the next three or four months, and industry players bet the reform will be implemented sometime in 2010.
Nonetheless, leadership from MPFA will be required, both to steer the legislation through Legco, as well as to enhance the MPFAÆs effort at investor education. æInvestor educationÆ remains a fuzzy concept, with the industry and the regulator accepting both must play a role, but with no body truly responsible for it. Nor do MPFA proposals about member choice include a formal means of assessing investor readiness.
ôIt would be a mistake to give people choice without ensuring they understand the product,ö says Rex Auyeung, managing director and Asia CEO at Principal Global Investors. He reckons the last thing anybody wants to see is a throng of disgruntled investors clamouring for a refund û as has happened over Lehman Brothers-backed structured products.
Regardless of who ends up as MPFA chairman, there may not be scope to achieve much this year anyway. MemberÆs choice is already on the Legco agenda. Meanwhile, MPFA remains bogged down with other matters. One is disclosure: after the Lehman Minibond fiasco, regulators are taking a closer look at this.
Another is how to distribute HK$6,000 to each MPF account, as promised by the government last year û the government and MPFA remain embroiled in a debate as to whether this money should count as a mandatory contribution (and therefore a long-term investment in the system) or as a voluntary contribution (meaning people can withdraw it at any time, which undermines the use of using MPFAÆs infrastructure to disburse cash, as well as sets up the industry for more redemptions in a volatile market environment).
In the end, itÆs a role that boils down to personality. The first MPFA chairman, Charles Lee, was aloof during the six years of his reign, delegating issues to the executive directors of MPFA. Henry FanÆs more outgoing nature was reflected in his high-profile reform programme. Whoever is MPFAÆs chairman come the end of March will say a lot about the level of interest by the Hong Kong government in advancing pension reform.
Fan is managing director of Citic Pacific and is currently being investigated by the Securities and Futures Commission over the corporationÆs HK$15.5 billion loss on unauthorised currency trades last year.
Since the loss was revealed in October, he suspended activity as MPFA chairman as well as other roles such as director at Hong Kong Exchanges and Clearing.
The SFCÆs initial investigation had focused on Citic Pacific but this week it announced it is expanding it to include Fan, along with 17 other board members and executives at Citic Pacific.
That has convinced MPF service providers that he wonÆt return to MPFA û which, along with the deteriorating economy, throws into question the reforms he had trumpeted at the start of his tenure.
The final decision to renew his contract is up to Donald Tsang, chief executive of the Hong Kong Special Administrative Region, who has yet to broach the subject in public.
In the summer of 2007, Fan proposed MPF members be allowed to choose the trustee of their contributed funds. This remains controversial. FanÆs vision was to spur competition and therefore drive down fees, which he also suggested were too high and should decline as assets in the system grew. The reform was also designed to empower members regarding how their assets are managed and by whom û and therefore serve as an incentive for them to improve their awareness of how MPF works, and the need to invest long term for retirement.
Some service providers remain sceptical. Peter Crewe, senior vice-president and regional director at AIG Global Pensions in Hong Kong, fears choice will introduce complexity too soon. He would rather see the MPFA and service providers delay the plan in favour of more investor education.
Member choice will also add to administrative costs and may not, therefore, help drive down fees, note MPF providers. Besides, last year saw many providers lower fees, or introduce new fund choices with reduced fee schedules, as a natural result of competition, notes Lau Ka-shi, CEO at Bank Consortium Trust.
Others such as HSBC InsuranceÆs Hong Kong managing director, James Sadler, believe member choice is a necessary reform for a system that has remained static since its introduction eight years ago. ôPushing ahead with member choice is key for the development of MPF,ö he says, although this must go hand-in-hand with continued investor education.
Industry execs agree that the systemÆs contribution levels and salary caps could also do with an overhaul, as they reflect worker remuneration from nearly a decade ago, but this is not on the governmentÆs agenda.
MemberÆs choice, on the other hand, seems likely to move ahead. Donald Tsang supported it in his last budget speech, and the MPFA has continued to work out details to submit to the Legislative Council. Legco may see a bill within the next three or four months, and industry players bet the reform will be implemented sometime in 2010.
Nonetheless, leadership from MPFA will be required, both to steer the legislation through Legco, as well as to enhance the MPFAÆs effort at investor education. æInvestor educationÆ remains a fuzzy concept, with the industry and the regulator accepting both must play a role, but with no body truly responsible for it. Nor do MPFA proposals about member choice include a formal means of assessing investor readiness.
ôIt would be a mistake to give people choice without ensuring they understand the product,ö says Rex Auyeung, managing director and Asia CEO at Principal Global Investors. He reckons the last thing anybody wants to see is a throng of disgruntled investors clamouring for a refund û as has happened over Lehman Brothers-backed structured products.
Regardless of who ends up as MPFA chairman, there may not be scope to achieve much this year anyway. MemberÆs choice is already on the Legco agenda. Meanwhile, MPFA remains bogged down with other matters. One is disclosure: after the Lehman Minibond fiasco, regulators are taking a closer look at this.
Another is how to distribute HK$6,000 to each MPF account, as promised by the government last year û the government and MPFA remain embroiled in a debate as to whether this money should count as a mandatory contribution (and therefore a long-term investment in the system) or as a voluntary contribution (meaning people can withdraw it at any time, which undermines the use of using MPFAÆs infrastructure to disburse cash, as well as sets up the industry for more redemptions in a volatile market environment).
In the end, itÆs a role that boils down to personality. The first MPFA chairman, Charles Lee, was aloof during the six years of his reign, delegating issues to the executive directors of MPFA. Henry FanÆs more outgoing nature was reflected in his high-profile reform programme. Whoever is MPFAÆs chairman come the end of March will say a lot about the level of interest by the Hong Kong government in advancing pension reform.
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