Editorial: Launch of eMPF Platform Marks a New Chapter – 20240506 – English – Daily Ming Pao

The Mandatory Provident Fund (MPF) system came into effect in 2000. The purpose is to ensure that working people have a sum of money for their retirement by requiring employees and employers to make contributions, with the assets managed by trustees. According to the MPFA, the total value of MPF assets was $1.09 trillion as of the end of September last year, an increase of 123% from ten years ago. Equity funds and mixed asset funds together made up nearly 80% of the total asset value, and their cumulative net returns were 125% and 117% respectively. This translates into average annualised net returns of 3.6% and 3.5% respectively, which are higher than the annualised inflation rate of 1.8% during the same period.

However, compared with many investments, the returns of the MPF are absolutely not impressive — they can even be described as paltry. If the total assets of $1 trillion were evenly distributed among all working people in Hong Kong who have contributed to the fund, each of them would only get several hundred thousand dollars of equity, which would only be sufficient to cover a few years’ retirement.

For many years, the retirement protection function of the MPF has endured skepticism. The offsetting mechanism (which benefits employers) and high management fees (which benefit fund companies) have been particularly criticised. Wage earners are the big losers. The offsetting mechanism allows employers to use their MPF contributions as severance payment and long service payment. Over the past 20 years, more than $60 billion in MPF funds that was due to wage earners has been “offset”.

After years of campaigning by the labour sector, the Legislative Council finally approved the cancellation of the offsetting mechanism two years ago, which will officially come into effect on 1 May 2025. This is belated justice for wage earners. As for the problem of high management fees, the MPFA hopes that the full implementation of the eMPF platform will bring about noticeable improvements.

The launch of the eMPF platform is an important step in the improvement of the MPF system, though it has come a bit late. As with the cancellation of the offsetting mechanism, it would have saved wage earners some losses had the platform come into operation a bit earlier. The MPFA says that in the first two years after its launch, administrative fees are expected to lower by an average of 36%, and by 41% to 55% in ten years. This will involve an amount of $30 billion to $40 billion, which is definitely not small. However, administrative fees are only part of MPF-related fees. Even if the fee ratio can be reduced to 1%, it is still relatively high.

The authorities should continue to bring down MPF fees so that they are in line with the average standards of other developed economies. The authorities should also continue the improvement of the MPF system. This can include broadening the range of investments to include Real Estate Investment Trusts (REITs), Exchange-Traded Funds (ETFs) and others with a view to increasing investment returns. At the same time, they should also consider subsidising low-income people’s contributions to the fund.

Ming Pao Editorial 2024.05.03: “Easy Provident Fund” helps reduce administrative fees and MPF returns need to be improved

The MPFA announced that the “eMPF” platform, which has been in preparation for many years, will be put into operation on the 26th of next month. All MPF schemes will be gradually transferred to the “eMPF” platform within 18 months.

The Mandatory Provident Fund (MPF) system was implemented in 2000 with the purpose of forcing employees and employers to make contributions and through trustee asset management to ensure that workers have a fund for retirement when they retire. According to MPFA figures, as of the end of September last year, the total asset value of the Mandatory Provident Fund was NT$1.09 trillion, an increase of 123% from 10 years ago. Equity funds and mixed asset funds together accounted for nearly 80% of the total asset value of the Mandatory Provident Fund. The two types of funds The cumulative net returns were 125% and 117% respectively, and the average annualized net returns were 3.6% and 3.5% respectively, which was higher than the annualized inflation rate of 1.8% during the same period.

However, compared with many investments, the return from the Mandatory Provident Fund is definitely not impressive, and can even be said to be meager. If the total assets of NT$1 trillion were evenly distributed among all the wage earners in Hong Kong who contributed, each person would be The average equity is only a few hundred thousand dollars, which is only enough to cover several years of retirement living expenses.

The retirement protection function of the Mandatory Provident Fund has been questioned for many years. The hedging mechanism and high fees have been particularly criticized. The beneficiaries of the former are employers, the beneficiaries of the latter are fund companies, and wage earners are the majority. loser. The offsetting system allows employers to use their MPF contributions to pay severance pay and long service payment. Over the past 20 years, more than $60 billion in MPF ​​funds have been “washed away” by workers.

The labor sector has been fighting for many years. The Legislative Council finally passed the cancellation of the hedging mechanism last year and it will be officially implemented on May 1 next year. This is finally a long-overdue justice for wage earners. As for the problem of high MPF fees, the MPFA hopes that after the full implementation of the “eMPF” platform, it can bring about significant improvements.

The launch of the “eMPF” platform is an important step in improving the MPF system, but it comes a little late. Just like canceling the hedging mechanism, if the platform is fully operational earlier, workers can suffer less losses. The MPFA stated that the platform is expected to reduce administrative fees by an average of 36% in the first two years, and by 41% to 55% within 10 years. The cumulative amount involved is as high as NT$30 billion to NT$40 billion. This is certainly not a small amount, but the administrative fee Fees are just one part of the MPF charges; even if the fund expense rate can be reduced to 1%, it is still relatively high.

The authorities should continue to further reduce MPF fees in the future and strive to be in line with the average level of other developed economies. In addition, the authorities must continue to improve the Mandatory Provident Fund system, including broadening the types of investments and including real estate trusts (REITs), exchange-traded funds (ETFs), etc., in the investment scope, striving to increase returns. At the same time, they should also consider subsidizing low-income people For MPF.

■ Glossary new words /

in the making : in the process of becoming something or of being made

paltry : too small to be considered as important or useful

due : owed to somebody as a debt, because it is their right or because they have done something to deserve it