Important changes will soon begin to re-shape how the Mandatory Provident Fund (MPF) will work in future, hopefully to provide a still softer and more secure "landing" for our 2.5 million future retirees who will be leaving the workforce at 65. What is regarded as the biggest inequity at present is the ability of employers to use their contributions to make severance and long-service payments to employees. Some low-income employees rightly felt cheated on learning that as much as 90 percent of their companies' contributions have been diverted for this purpose. Obviously this deft little maneuver is allowed under present rules of the scheme, but since it goes completely against the spirit of the MPF surely those rules should have been amended long ago, as the scheme is now in its 15th year.

A second proposed change would allow employees to move not only their own contributions, but the matching contributions of their employers, to an authorized provider of the employees' choice. This would end another cozy arrangement under which the company and/or employer is now permitted to put the employees' contribution with a provider of their own choice, disregarding whether the employee agrees or not.

Another very significant reform in the pipeline is to require providers to offer a simple core fund, with fees capped at 0.75 percent - a far more reasonable rate than the current average management fee of 1.7 percent. This proposed core fund is seen as the way forward as a standardized simple choice and low-fee default fund of all MPF schemes. But what sort of struggles will the MPF board find itself involved in with the providers fighting desperately to retain their present lucrative slice of the pie?

It is expected that these and other reforms will follow the recent change of the chairmanship of the MPF's board from the long-serving Anna Wu to David Wong, plus the appointment of two fresh non-executive directors, Abraham Shek and Kingsley Wong, who no doubt will also bring fresh ideas to the scheme.

Wong said recently on his appointment that he wanted to get new ideas such as the core fund properly implemented. He said he would also "continue with the sensible things the MPF authority has done, and for things that have won public support", and pointed out that flexibility in administering the scheme was necessary because Hong Kong people generally change jobs quite often.

But unionists are vowing to watch David Wong's performance closely since he is a former president of the Chinese Manufacturers' Association of Hong Kong. These workers' representatives say they will be vigilant about any perceived signs of favoritism toward management.

Meanwhile, we may be assured that Wong will take his new responsibilities very seriously; well aware that the total amount of MPF savings is a staggering HK$5,750 billion. With such huge amounts involved and the international monetary markets so sensitive to sudden crises, the most scrupulously prudent management is required. This is no room here for experiments or tinkering.

But what problems might lie over the horizon? Wong and his board will need to have the wisdom of Confucius if, for example, a proposal is made to increase Hong Kong's retirement age to, say, 68, or perhaps even 70, to keep pace with improved health and longer life-spans across the population. Related to this possibility are statistical projections indicating the population of Hong Kong aged above 65 will increase to 19 percent by 2021. Without doubt some of those affected will wish to keep on working while still able-bodied - but then again they wouldn't be likely to defer collecting their MPF "jackpot" on turning 65.

Another change to be confirmed by the incoming board is to enable employees to access their contributions at least four times a year without having to pay extra fees to their providers. As we understand it, this will enable employees to get their MPF money in driblets every three months. The obvious drawback to this idea seems to be that when the employee eventually retires, his lump sum will have become an inconsequential "slump sum", or the opposite of the intention of having the MPF in the first place.

Turning to the "providers" on whose judgment and acumen the choice of investments depends, should there be a regular appraisal of their rates of success or failure, so that the successful ones are encouraged to keep up their gainful operations, while the failures are gradually weeded out and hopefully replaced by more prescient observers of fiscal ups and downs?

Meanwhile, to keep up with developments in the financial markets and the employment situation in Hong Kong the MPF's board has regularly introduced various changes and improvements, starting in July 2002 and continuing in 2003 and 2008. But apparently that was just chickenfeed compared with the big changes coming in the future - may they combine to confer more blessings on all future retirees.

The author is a major employer in the Philippines and a seasoned observer of Asian affairs.

(HK Edition 04/17/2015 page12)