MR CHAN KIN-POR (in Cantonese): President, I did not intend to speak at first because this is just a very simple motion regarding the minimum level of relevant income for Mandatory Provident Fund (MPF) contributions. Unfortunately, as is usual in this Chamber, this very simple matter has been made very complicated. Members have been delivering irrelevant speeches, and they simply make use of this motion topic to voice their other views. Therefore, I must also speak, so as to strike a balance and say a few words of justice to enable the public to understand more.
I can understand the reasoning behind the speeches of those Members representing the grassroots and other Members. However, I am very disappointed with the speeches of Members from the business sector. I am still puzzled now, and I do not understand the motive of their speeches. I even have to say that the message they have imparted is erroneous in my eyes. Hence, I must give a response. First, it is said that of all the retirement protection systems in the world, the one in Hong Kong has the shortest history and is marked by the lowest rate of contributions. The existing retirement protection systems in other parts of the world, such as the United States, Europe, and so on, have been in place for 20 to 30 years, and these systems all underwent a period of growth before they can become fully-developed as they are. According to a consultant who has conducted a systematic study, a comparison of the Hong Kong system with other systems of roughly the same age shows that the fees charged in Hong Kong are not expensive at all, as the fund expense ratio (FER) in all cases is about 1.6% or 1.7%. Some people always say that the fees charged in Hong Kong are the highest. But they do not explain the reason for this. The fact is that the Hong Kong MPF system is the youngest and its rate of contributions is the lowest. It is only natural that the FER is high. However, when the denominator increases and management fees do not rise substantially, the FER could drop to below 1%. The consultant has also pointed out that if a series of measures are adopted, the FER could be lower than 1%. I hope that Members would not confuse these concepts and confound right and wrong. This is indeed most saddening.
Second, many people have recently talked about MPF discounts. Some people think that the Mandatory Provident Fund Schemes Authority should disclose the actual level of discounts. As in the case of the gross floor area and the saleable area of a residential unit, stating the saleable area can of course serve greater practical purposes. But surprisingly, some Members from the business sector oppose the disclosure of the actual figure. I really do not know why. My sector estimates that there is about a 0.2% to 0.3% discount. This means that after deducting this percentage from 1.7%, the FER actually borne by the public is about 1.4% to 1.5%. There is already a very big difference. However, I am really puzzled as to why anyone should oppose the disclosure of these facts.
Third, some people also argue that everything will be fine once a central trustee is established. However, if we look at the cost structure carefully, we will see that there are also fund fees and administration fees, and trustee fees are not the most expensive. Why are administration fees so high? Because huge manpower is required in the absence of automation, and there are numerous demands to meet. Excessive demands are not of any good to the public, and service providers also suffer as a result. Why must all this happen? We are in fact rather helpless as this is the Government’s approach, and it has never reviewed the situation. The biggest problem with this Council is that whenever the real difficulties cannot be reasoned out, the issues concerned will be blindly escalated to the levels of cardinal principles of what is right and what is wrong. What is the result of this? The result is that we fail to tackle the problem at root and to focus on the real problem. The biggest problem with the MPF is about administration fees because the administrative work involved is just too complicated, to the extent that whoever does the job is bound to end up in a mess. If the Government is to take over, efficiency will be even lower and the costs higher, and the idea will not be viable unless with the subsidy of public money. So, we must understand that the problem actually lies with administration fees and administrative procedures, and so on. Some consultants have been commissioned to conduct various studies. But since these highly expensive consultancy reports are simply ignored by all after completion, what is the point of compiling them at all? If Members have time, please carefully read the consultancy reports which have cost us so much money. Administration fees are so high because the procedures are still extremely labour-intensive, and we are even still writing cheques instead of using automatic transfers. We must focus specifically on these problems. Even if we continue to argue bitterly here, the fees will still remain very high, and whoever is to do the job will not be able to change the situation.
In addition, the performance of the financial market has been really disappointing over the past decade or so. As we learnt during our school days, or as our own research can show, the usual average return rate of the stock market over a 10-year period should be close to 15%. But in recent years, the stock market cycles have turned increasingly short. A cycle may last two or three years only. An average return rate of 6% to 7% for a 10-year period is already extremely good these days. In fact, the whole economic environment has already changed, and I myself am very frustrated, not knowing how to deal with this problem. It is rather difficult for us to deal with external factors, but I think we should fulfil our duties first. What does this mean? We must automate and rationalize the MPF system. Automation can enable us to reduce actual costs greatly, and rationalization can help us cut many work procedures, in which case we will not need to hire so much manpower to recover default contributions from employers. Such work is very time-consuming. There are also all those “preserved accounts”, accounts that have remained inactive after opening. They number more than 4 million now. However, it is still necessary to provide regular service and information to these accounts. This again involves money. All this has a bearing on our costs. Once we can settle all these problems, then with discounts, the FER will already go down to nearly 1%. At present, even the fees rates for some very large schemes in the United States are more than 1%. So, I think we must be fair and face the real situation, so as to solve this problem
In addition, apart from high administration fees, MPF funds also involve fees for fund managers. But the levels of such fees vary, depending on the funds chosen. If passively managed funds are chosen, the fees will be much lower. Amongst the existing 400-odd types of funds in Hong Kong, the FER of many of them is below 1%. There are numerous funds charging a fee as low as 0.3% to 0.5%. Yet, why do so few people choose these funds? In my opinion, more efforts should be made in publicity, education, and so on. But I think the public are very smart. They know that the fees charged by various funds do not differ significantly. Are there any big differences among 0.7%, 1% or 1.7%? People place more emphasis on fund performance, and think that this is of utmost importance. We must understand that the average rate of returns over the past decade is still much higher than the inflation rates after deducting the factor of administration fees. Therefore, the rate of return on investment is not as poor as Members have said. I beg to differ from their view.
I initially did not intend to speak. But I would like to make some fair comments after hearing too many unjust remarks. So, my speech may be a bit shoddy and disorganized. I only hope Members will understand that the MPF system has its problems, but there is more than $400 billion in the MPF system …… President, may I ask Members to keep quiet so that I can concentrate on my speech?
PRESIDENT (in Cantonese): Mr SIN Chung-kai, please do not talk with other Members.
MR CHAN KIN-POR (in Cantonese): I hope we can all identify the problems with the MPF. The offsetting arrangement is certainly a major problem. On the one hand, employees do not think that this is a desirable arrangement because offsetting will reduce their retirement benefits. But on the other hand, we should not forget that employers finally agreed to implement the MPF years ago only because of this offsetting arrangement. But after so many years, should we consider implementing an incremental approach, so that the offsetting arrangement can be phased out gradually starting with long-serving staff? Of course, employers’ assent must be obtained beforehand, but I think this is worth considering.
Regarding the problems with the MPF I mentioned earlier, I hope that we can first focus on how to automate and rationalize the system and then focus on how to make the public understand its operation. The public should understand that during young age, more investments can be made in high-risk funds, and as one ages, low-risk funds should start to occupy a larger proportion. It is also advisable to set up some automatic investment options based on contributors’ ages and various risk factors.
But the main problem at the end of the day is that financial turbulence and fluctuations in the stock market may make us unable to attain the expected rates of return. This really presents a major problem. In this regard, I hope the Government can consider any good suggestions from Members. What the Government needs to do in the time to come is to step up education, so that the public can understand that MPF returns will deteriorate if they do not properly manage their MPF portfolio. They must do their best to learn how to properly manage their pension funds, so that they can improve their retirement arrangements.
President, I so submit.