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Hong Kong Looks To Reduce Pension Fund Fees

by Mary Swire,, Hong Kong

26 October 2012

With the average fund expense ratio of Mandatory Provident Fund (MPF) schemes falling, Secretary for Financial Services and the Treasury Prof KC Chan said that Hong Kong’s government believes there is room for a further fee reduction, especially in view of the growing size of the pension fund system.

In response to a recent Legislative Council question, Chan told lawmakers that driving down MPF fees has been on the top of the agenda for the government and the Mandatory Provident Fund Schemes Authority (MPFSA).

He said measures to increase market transparency and promote market competition have already been taken. The MPFSA developed a uniform approach for illustrating the total effect of fees and charges impacting on MPF funds, in 2004. He also confirmed that the trend of average fund expense ratios and other developments concerning the MPF system are being closely monitored, in devising new initiatives to enhance the system.

While the effect of the Employee Choice Arrangement (ECA), where employees may opt for transferring the accrued benefits derived from their MPF contributions to the MPF schemes of their choice, on the exact pricing dynamics of the MPF market has yet to emerge, Chan believed that it should reduce the system-wide fund expense ratios, if more scheme members focus on transferring to lower-fee funds and exert pressure on the industry to further reduce fees and charges.

Following the introduction of the ECA on November 1 this year, "we will continue to keep track of the market situation, including the change in the fund expense ratios of MPF funds, and introduce new measures as necessary," he concluded.

The Hong Kong MPF is a form of compulsory savings system designed to meet the needs of the territory's rapidly-ageing population. In 2000 the government passed the Mandatory Provident Fund Ordinance and as from December 1, 2000 all employees and self employed individuals earning more than HKD4,000 per month (now HKD6,500, USD840) had to contribute a minimum of 5% of their salary up to a maximum amount.

A comprehensive report in our Intelligence Report series titled "The Lowtax International Pensions Report" which has an in depth view on The Mechanics of Pensions Provision, 'High-Tax' Country Pension Regimes and 'Lowtax' Jurisdictions In Which To Locate Pensions Savings, is available in the Lowtax Library at and a description of the report can be seen at
TAGS: individuals | tax | investment | pensions | law | retirement | investment funds | fees | Hong Kong | regulation

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