Among the ideas under consideration for inclusion in an upcoming public consultation exercise is that retirees could take money out of their accumulated savings in installments rather than a lump sum. In this way, they could choose what they think is the best or most profitable time to cash out.
Another proposal will allow employees to move their contributions to different trustees once a year.
The Mandatory Provident Fund Schemes Authority (MPFA), which oversees the whole system, has also raised the possibility that non-retirees could withdraw a portion of their money before reaching the age of 65 in the event of serious illness, or to pay for hospital fees and their children's education. Some say such reforms could actually hinder the authority's goal of reducing administrative fees charged by fund trustees.
Yuen Tick-chi, senior financial planning manager of an international insurance company, says the latest proposals would definitely increase unnecessary administrative work for agents and fund providers, and hence would result in higher management fees. He says details of the plans are vague. For example, who will screen applications for fund withdrawal and decide whether the account holder is qualified? What kind of illness will the authority consider serious enough?
He feels that the MPFA should not have floated the mainframe ideas without filling in much needed details. "This has created more problems than solutions, and hasled to confusion among account holders, agents and fund providers," he says.
Yuen says another question that has not been addressed is the privacy issue. "Sometimes the client does not want to divulge the nature of his illness. So how do you circumvent this problem?"
Meanwhile, Mac Hui, a senior financial planner of another well-established insurance firm, says changes are needed to make the MPF scheme more attractive. He says "the government and the market must give incentives." Besides tax rebates to lure the end users to contribute more on a voluntary basis, agents should also be offered an attractive compensation package.
Financial planners say the reforms would create more demand, and thus increase business opportunities, introduce healthy competition and reduce administrative costs.
All these would eventually improve the quality of service although they would mean extra work for administrators of funds at the initial stage, says Kenrick Chung, director for MPF business development at Convoy Financial Services, an independent financial advisory firm.
He says if half of Hong Kong's account holders chose to move their accounts around once a year, we are looking at 19 trustees having to handle some one million transactions.
"We are talking about a huge volume of paperwork and account servicing. Even though the MPFA is devising an electronic platform to help providers streamline and speed up the entire process, some agents still need to provide counselling and account servicing to clients," he says.
In the long term, fund providers will have to consider putting in place a more comprehensive system to step up customer service or increase the number of hotlines, he points out.
"It's bitter first and sweet later. More client involvement means more inquiries and interest. And because the funds are moved around more frequently, it would energize the MPF market, giving rise to incentives to create more business ideas and create more business opportunities for the sector," he says, adding that the reforms can create positive competition. "They will definitely raise service standards by providing more choices and bring management fees down to benefit account holders," he says.
Chung doesn't believe it would necessarily squeeze out smaller fund providers because increased business movement will create more opportunities for expansion.
