Hong Kong’s Mandatory Provident Fund Schemes Authority (MPFSA) has proposed a cap on management fee for service providers and the introduction of a low-cost standardized core fund for people who do not know which fund to choose for their pension contributions.
According to the proposal, the management fee for the core fund must not exceed 0.75 percent, with all other charges combined not surpassing 1 percent over a medium term of about three years, the Hong Kong Economic Journal reported Wednesday.
Existing funds in the market currently charge a management fee of about 1.3 to 1.4 percent on average and a total fee of about 1.69 percent.
The launch of the core fund is likely to add pressure on the pricing of other funds, said Lau Ka-shi, managing director and chief executive of Bank Consortium Trust Co., a leading scheme provider.
However, the returns that could be generated from a higher-cost fund may top that from a core fund of standard charges, he said.
The MPFSA’s proposal will undergo a three-month public consultation through the end of September, the report said, citing the pensions regulator’s managing director Diana Chan.
The regulator also suggested that scheme providers should launch funds that will automatically adjust investment risks in accordance with the employees’ age, or to suit the clients’ needs at different stages of their lives or meet specific investment periods.
About 24 percent of the 2.5 million scheme holders currently have their contributions put into default funds as they have not made any specific choices.
Such default funds, estimated at 40 plus, are said to represent about 10-13 percent, or HK$50 billion (US$6.45 billion) to HK$60 billion of the total assets under management.
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