Is your MPF really that expensive ?

How often have you read in the newspaper that MPF plans are expensive? We constantly see articles telling members that MPF plan fee's are high and need to be reduced. However, whilst lower fee's on your MPF plan might be a nice thing to have what you should really be asking yourself is how expensive are the other types of savings vehicles that are commonly sold to individuals in Hong Kong?

Average MPF fee's as detailed in the table below (extracted from the SCMP, Hong Kong) running at 1.92% are actually extremely low.

When you bear in mind that this fee includes most of the costs of running the plan and investing your money in the underlying funds as well as ensuring that your assets are held in a secure structure in trust then this is a reasonable fee to pay.

If you're making Additional Voluntary Contributions (AVC's) into your MPF or an ORSO plan offered by your employer then that also is a very cost effective and secure way of accumulating savings/retirement reserves.

Unfortunately the majority of Hong Kong employees don't make AVC's into their MPF or ORSO plan but instead purchase individual plans that are sold to them from banks and insurance companies.

These products can include layers of additional fee's including front end charges, mirror fund fees, excessive administration fee's, switching fees and heavy surrender penalties for early encashment.

You can also be penalised for reducing your contributions after the plan has started and will incur the cost of heavy commission payouts to middlemen. With these types of plans total average fee's can range from 5% - 8% per annum depending on the provider.

So next time you see an article telling you that MPF is expensive, make sure you first compare your MPF plan to the cost of the individual savings plan you use to accumulate your savings/retirement fund.

Secondly ask yourself this - MPF might be too expensive but compared to what ?

Chris Anderson, Director
Indigo Global
7th June 2010.