Like bankers, lawyers love to put their hands in your pockets. But when someone puts his in mine, I take it personally. This includes my MPF manager. For all of you non-HongKongers, MPF stands for Mandatory Provident Fund, a compulsory pension savings scheme where employees and employers must each contribute a sum of at least 5% of an employee’s salary to an approved equity fund, managed by fund managers. The fund may be withdrawn when the employee reaches 65 as his pension.
We don’t get any real meaningful choice
Most people have no problem with the concept of saving or investing money (even if they are forced to do so). But one problem is that the choice of funds available are pre-determined by MPF managers. We don’t really have a meaningful choice on exactly what we are investing in, as most choices are some sort of generic mutual funds categorized arbitrarily, i.e. by region (e.g. “China Equity Fund”) or type (e.g. “Health Care Fund”). You don’t even get to choose which companies to invest in.
High handling charges of our MPF managers
After we make our “choices” on where to dump our cash every month, the MPF managers take our money and play with it with impunity. The MPF managers always win, because they charge high handling fees at something like 1.56%. This is robbery! But we have no choice – we must give our money to our MPF managers so they can buy stocks that we don’t even want! So, when I see customised license plates on expensive cars like “MPF KING” or “MPF MASTER” (I kid you not), they’re begging people to scratch their cars which all of us collectively paid for.
Set-off mechanism on severance and long-service payments
Never mind that we don’t even get to choose where our employer’s contribution goes. Because our employers could use their contributions (their 5% of our pensions) to “set-off” severance and long-service payments. This means that they deduct our severance or long-service payments from our pensions. The result is that they contributed nothing! So we are only left with our own contributions (our 5%) – which might end up being less than what we began with. Because our MPF managers might actually lose our money in the stock market, on top of the high handling charges! A colleague of mine lost 10% of his pension last year alone!
Does scrapping the set-off mechanism even matter?
Recently, the government has “pledged” to scrap the set-off mechanism. This was in CY Leung’s policy address. Now, we have employers up in arms, saying that the set-off mechanism was the only reason they even agreed to letting the government introduce the MPF in the first place. If the government abolishes the set-off, these poor employers will have “no choice” but to fire all their staff and re-hire them under short-term contracts (for the sole purpose of depriving them of their entitlement to severance and long-term payments). No more severance and long-term payments for everyone!
I vowed to wage war against my MPF manager
Due to these injustices, I have ventured upon making my MPF manager’s life as difficult as possible. At the very least, I want him to try justifying his existence in my life, to help me cope with the fact of his existence. At least make him feel bad about it. Since I had to make a choice on where to throw my money away anyways, I asked my MPF manager this: “Given Trump’s latest stance on foreign trade policy and President Xi’s next Five Year Plan on the Chinese economy and outflow of RMB out of the country, how would you analyse the short-term and long-term prospects of the China equity market?”
My MPF manager’s “advice” was to bet on China
I knew there was no clear cut answer, but he can at least narrow down a few variables and make a reasonable analysis to make him sound smart. The answer I was looking for was his view on whether I should hedge my risks on China or the US. It doesn’t matter what his advice was, because I already made up my mind. He was my MPF manager and I just needed to know where he stood with my money. He was a pretty sharp guy and gave me a pretty good analysis – his conclusion was that I should place my bet on China. Fair enough, though I prefer not to put all my eggs in one basket.
But even before I asked for his “advice,” we both knew why the MPF exists. The government had foreseen the consequences of our aging population and does not want to publicly fund a universal pension scheme. The MPF is here to save the government (with our own savings). We both knew my question was moot. But the only thing we could really do was to make the “MPF reality” a little less painful. And one way of doing just that was to ask him which MPF fund I should buy, so we can both pretend, for just a brief moment, that it even matters.