Hong Kong's Mandatory Provident Fund is heading for its second straight monthly loss. MPF Ratings estimated that the system lost 1.54% in October as of Oct. 20, or about HK$5,217 for each of its 4.97 million members, after a 1.47% decline in September. The year is still positive, with an estimated return of 4.57%, but the swing is a useful prompt for policy.

The lesson is not that the MPF is failing. It is that too much of members' money is moving in the wrong way at the wrong time, and the system's best tool for preventing that is underpowered. The government and the Mandatory Provident Fund Schemes Authority (MPFA) should lower the fee cap on the default investment strategy (DIS) and put it in front of every member who switches funds.

Chasing Winners Is Costly

October's damage came mostly from Asian, Hong Kong and China equities. MPF Ratings Chairman Francis Chung said Asian equity funds had been on course for a 30% gain in May, that the figure has since halved, and that the category was likely to lose around 7% in October alone. As Capital Times reported, Hong Kong and China equity funds are on track to be the worst MPF asset class of the year.

Members have been trading heavily into that volatility. Consultancy GUM estimated net fund switching this year at HK$74.7 billion, a five-year high and about 25.5% more than in 2025, The Standard reported. The spread of outcomes is wide: provisional MPFA figures showed the best equity fund gained more than 98% in the 12 months through September while the worst lost 15.7%.

The stakes are rising. A GUM survey of 808 members found that 28% now expect to need HK$8 million or more to retire, up from 21% a year earlier, and the average savings target rose 12% to HK$6.48 million. Against an average account balance that MPF Ratings put at about HK$334,316, those targets leave little room for buying high and selling low. GUM itself warned members this month that trying to predict market trends is futile.

The Default Already Works

The DIS was designed for this problem. Its Core Accumulation Fund holds about 60% in higher-risk assets, mainly global equities, and its Age 65 Plus Fund about 20%, according to the MPFA. From age 50 to 64, a member's money shifts gradually from the first fund to the second, with no decisions required.

The record is respectable. The Core Accumulation Fund returned 9.5% in the 12 months through September and an average 7.1% a year since its 2017 launch, the MPFA said, compared with 5.1% a year for equity funds and inflation of 1.8% since the system began. Members appear to be noticing: GUM counted combined net inflows of about HK$10.9 billion into the two DIS funds this year.

Its main advantage is cost. Management fees on DIS funds are capped by law at 0.75% a year, a level the government set in 2016 and itself called "a starting point" for further cuts. Total expenses are capped at 0.85%, MPF Ratings noted. Before the eMPF Platform, trustees charged an average of about 0.58% a year for scheme administration, according to MPF Ratings. The platform cut that layer to 0.37% for onboarded schemes from June 2024 and to 0.29% from April 1, 2026. A cap fixed before those savings arrived no longer does much work.

What the MPFA Should Do

First, the government should lower the statutory DIS management fee cap to reflect the eMPF savings, and commit to reviewing it each time the platform fee falls. Lower fees are the one return that members are guaranteed to keep, and the effect compounds over a 40-year working life.

Second, the eMPF Platform should show the DIS as a standard comparison whenever a member switches funds, alongside the chosen fund's fee and its recent volatility. This is not a ban on choice. Members who want a single-market fund should be free to hold one. But the switch screen is the moment when a nudge is most useful, and the platform now gives the MPFA a single place to provide it.

The counterargument is that lower caps squeeze trustees and that members, many of whom told GUM they want better tools, should be trusted to manage their own money. The Board agrees that choice matters. But the default exists because most savers will not become active managers, and a default that is cheaper and easier to find serves both groups.

The next test is the MPFA's provisional October figures. It released September's provisional data on Oct. 6. Whatever the final figure, the regulator should use the moment to cut the DIS fee cap and make the default the first option members see.

This editorial is general commentary, not financial advice.