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The Mandatory Provident Fund Schemes Authority (MPFA) will commission an independent consultancy study on trustees' administration costs. The study seeks to identify ways to further simplify administrative processes to achieve greater economies of scale so as to reduce costs, thus allowing room for further fee reductions.

The MPFA is always looking for ways to refine and improve the MPF System. In May this year, a Working Group on MPF Reform Issues was established under the MPFA Management Board to study measures to facilitate further reductions in fees and charges, and to give employees more control over their MPF accounts.

According to the MPFA's assessment, the costs of scheme administration functions constitute the largest part of the fees for MPF schemes. The MPFA therefore considers it appropriate to commission an independent study to understand and analyse the costs in greater depth and make suggestions on how to achieve simplicity, economies of scale and cost reduction. Trustees' administration functions include handling enrolment in MPF schemes, collecting contributions, allocating contributions into members' accounts for investment, assisting in the recovery of outstanding contributions, monitoring investments, ensuring compliance with regulatory requirements, ongoing administration, and processing benefits payments.

MPFA Chairman Anna Wu Hung-yuk said, "The level of fees of MPF schemes has always been a matter of great public concern. We believe there is still room for further fee reductions, especially since the value of assets in the MPF System has more than doubled over the past five years to some $390 billion. We hope the study will assist the MPFA in understanding more about trustees' operating costs and in proposing measures to reduce the costs to give more room for further reductions in fees."

The MPFA will shortly conduct an open tendering exercise for the consultancy study and newspaper advertisements will be placed tomorrow (21 July 2011) to invite expression of interest. The appointment is expected to be made in October this year, with the report completed by mid-2012.

Over the years, the MPFA has repeatedly urged trustees to cut fees and has undertaken different initiatives to facilitate fee reductions by, amongst others, streamlining administrative procedures, enhancing fee transparency and increasing market competition. In fact, in the past three years, the average Fund Expense Ratio of MPF funds has dropped by 13% to 1.83%. All trustees have reduced fees (with over half having cut fees more than once), or have introduced new low-cost funds or schemes.

The MPFA also understands that scheme members hope to exercise greater control over their MPF accounts. Preparation for the launch of the "Employee Choice Arrangement (ECA)", or the so-called "MPF Semi-portability", is now in full swing. In the long run, the MPFA believes that ECA should be expanded to cover employers' accrued benefits. In other words, "MPF Full Portability" should be introduced to allow employees to move the accrued benefits derived from their own mandatory contributions, as well as those of their employers, to a scheme of their own choice once a year.

Ms Wu said, "'MPF Full Portability' is a long term goal and will bring fundamental changes to the MPF System. We will need extensive discussion regarding its implementation."

Under current legislation, employers may use the MPF accrued benefits derived from their contributions made for employees under the MPF scheme to offset severance payments and long service payments. Therefore, to facilitate "MPF Full Portability", the MPFA has to explore ways to capture the data of all scheme members' accounts to enable employers to know the whereabouts of the accrued benefits derived from their contributions. The MPFA will therefore study the feasibility of setting up a "central database".

In the meantime, another working group under the MPFA Management Board has finished a review on withdrawal of MPF accrued benefits. The scope of the review includes:

The Working Group will shortly submit its report to the Management Board for consideration. Thereafter, the MPFA will submit its recommendations to the Government.

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20 July 2011