Monday, August 10, 2009

Tax breaks for MPF? No thanks

Fund managers have lamented the low rate of voluntary contributions to the MPF scheme (Hong Kong's mandatory retirement scheme). Suggestions have been made that higher rates of contribution would be achieved if tax breaks were given for voluntary contributions.

The blunt reality is that the MPF scheme is successful at one thing and one thing only - the destruction of investor wealth. The fees are outrageous enough to embarrass Bernie Madoff (not that I have been able to work out what those fees actually are - MPF providers are adept at making it next to impossible to do this) and the performance has been nothing short of pathetic. After (about) a decade of dollar cost averaging into two of the available choices my investment is still worth less than my contributions - a lot less. The same exercise into a comparable actively managed equity fund would have done better (and using low cost index funds much better).

To put it in plain English: MPF sucks.

It is so bad, I do not know a single person who has ever made a voluntary contribution.

Even if I could get 100% tax deduction on voluntary contributions - I would still not put a single extra dollar in. A 15% tax break would not even come close to compensating for the ridiculous fees and lousy performance.

As a taxpayer I support the concept of a mandatory retirement scheme. Something along the lines of America's 401K plan or the Australian model would be worth implementing. But the MPF scheme is has been a disaster for Hong Kong's savers.

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