The proposed "core funds" under the Mandatory Provident Fund scheme, expected to launch by the end of next year, hope to lower fees and improve returns by as much as HK$120 billion on contributions from employees who do not actively manage their accounts.
People generally welcomed the new scheme, although some experts believe the response may not be overwhelming.
MPF trustees will be required to launch two new funds under a proposed "default investment strategy," with a management fee capped at 0.75 percent. Total expenses of these so-called core funds, including auditing and special charges, would be less than 1 percent, compared to the average 1.6 percent of existing MPF funds.
An asset allocation ratio of 6:4 for global equities and bonds is set for employees aged below 50. The ratio will be gradually and automatically adjusted for lower risk when the employees get older, to 2:8 when they turn 65 years old.
Similar MPF mixed-asset funds existing in the market have fetched an annual return of more than 3 percent in the past ten years.
MPF Authority chairman David Wong Yau-kar expects the introduction of new kinds of default funds with low fees and easy structure will be welcomed by employees.
Currently employees who did not indicate their investment options will have their contributions automatically put into guaranteed funds with conservative investment strategies. Annual fees could be as low as 0.13 percent, but annualized return averaged 0.1 percent only in the past five years.
Wim Hekstra, chief executive of Sun Life Hong Kong, one of the MPF providers, said people prefer funds that are actively managed.
AIA Pension and Trustee chief executive Stephen Fung Yu-kei said if the low-fee funds prove to be more popular, the rest might follow.
Bob Chan, 53, an accountant who works in Central, said it was good news to him, adding he would switch his plan to the new core funds, as his current ones are quite expensive. Angel Wong, 24, who works in the catering industry, said she did not understand the new plan clearly, but welcomed one more choice.
Labour Party lawmaker Cyd Ho Sau- lan said the arrangement will benefit grassroots workers "because they do not have professional knowledge to handle the investment issues."
Imogene Wong and Kenneth Lau
Thursday, November 12, 2015