More government-led solutions are available to tackle Hong Kong’s pension funding problems, said the retired head of the city’s MPF body.
Such solutions could even include the government launching its own fund products and investing on behalf of MPF members.
Anna Wu spoke out last Friday on her last day as chairwoman of the Mandatory Provident Fund Schemes Authority (MPFA), a position she held since 2009. Her replacement, David Wong, starts as MPFA chairman today.
Wu’s speech coincided with the publication last Thursday of a government and MPFA report in response to consultation on a proposed ‘core’, or default, fund for MPF retirement savers.
With MPF providers’ under attack for poor performance and high fees, action from the government was forthcoming last week and represents a major blow to active managers operating in the MPF market.
The report approved the roll-out of a new low-cost fund option, mandated at a set fee of 0.75% per annum.
The fund management industry lobbied for less draconian arrangements, but the government and MPFA-authored report concluded that actively-managed funds had not delivered and that MPF members were “best protected by the development of better solutions than those existing at the moment.”
Praising the report, Wu said that the introduction of the default fund would help to cut costs, stabilise returns and reduce risks.
But the outgoing chairwoman said the government was able do more to help, and referred to past suggestions of setting up a government-run trustee, or mandating a non-government institution, to further lower the cost base.
Other ways of lowering costs could be for the Hong Kong government to launch its own products and make investments on behalf of account holders, Wu said.
“Currently, the government does not want to do this because when they started the MPF, there was a commitment that it will be run by the private market,” she said. “[With the introduction of the core fund], we are half over-stepping the current government policy.”
“From the private markets perspective, the view is you should not standardise these products or cap their fees. But because the MPFA has a public commitment, we need to consider that objective."
However, Wu noted that if the government were to reduce fees further through government-run trustees or products, there were no legal hurdles involved or legislation required.
“In the future, if the government wants to consider further reducing fees, the law allows various ways for it to be involved in the market, but this needs to be a policy decision,” said Wu, who also noted that the belief in market non-interference remained strong within government.
Looking back on her time at the MPFA, first between 1998 and 2005 as a non-executive director and then from 2009 as chairwoman, Wu said one of her biggest challenges had been to manage public expectations.
She said she was sympathetic to members’ concerns about poor-performing MPF funds, but pointed out there was a lack of communication in explaining that the MPF was only one of three retirement pillars.
“Hopefully, in the future, the role of each pillar can be better explained,” she said, although she conceded the question would continue to arise, as people would always feel their retirement fund was insufficient.
While Wu did not comment on her future plans, she quipped that she has no ambition to take part in the city’s 2017 chief executive election race.