Ki SP ELGSnee ean Turnaround on MPF jokea «ch victory for placard wavers {propose to make aone off injection Of HRS6,000 into the MPF accounts ofall MEF scheme members. Financial Secretary Jon Tsang ‘Chun-wah, Budget speech, 2011 feourse hehasnow proposed to deproposeit orrepropose itor do something else to satisy the placard wavers, But ler'sjust examine why itwasabad idea anyway. With the Mandatory Provident Fund youmust always tart by recognising thatthe big financial hhouses devised the scheme to suit themselvesrather than the purported beneficiaries the working people of HongKong Yes, know the MPPs actualy a goverment scheme. also know thatitwas the Tooth Fairy wholeft a ‘coin under my pillowin place of my Toothe tooth when Twas aid. Let's get eal. The banks told the bureaucrats what to do and the Dbureaucrats sid: "Yes, Si” ‘What the banks wanted was to stop MPF account holders from beingableto choose their own pension managers, thus rendering them captives that they could be squeezed forhigh MPF fees and charges. The plot worked, The basic ‘administration fee alone averages 169 percenta year. "Now lt’take the HK$6,000 that John Tsang rst proposed and then deproposed to stickinto every MPF ‘account, which isto say, pickpocket fromyouwith one hand and give backto you with the other. Letsalsoassumea younger ‘worker who would only collet the money asa pension in 30 years. How much would he getihis HK$ 000 ‘were charged 1.89 percent every Butwedon’tstop there. This ‘overs only the administration fee. It takes no account of the time value of the money. Here isthe eritical question: How much would you pay ‘me today forthe right to collect HKS100 from me in a year’s time? ‘Tell me HK$100 and the deal is ‘yours. Tellme HK§90 and no deal. ‘Somewhere between istheright figure. We must thusadd another discount factor to arrive ata value today for the HKS6,000 that our MPF ‘beneficiary would have collected 30 ‘years from today. We shall be Conservative and put this annual discount factoratonly’3 percent. ‘We ate now at 4.89 per centin {otal and our HK$6,000 would now bbe worth only HKS1,333. ‘Way too low, say my financial Among seven million people in this town. there are plenty of ideas for generating returns of 20 per cent and up on invested. capital. There always have been ... except John Tsang doesn't realise it analystfriends, meaning that the discounts way too low. Make itat least per centin total, they say, including the fees. We are nowat 1HKS600 in present value, ‘So, yes, we shall have to concede this one to the placard wavers. This MPF handoutwasajoke. Itwasa hhandoutto MPF managers, not MPF accounts. But stop, yousay. Surely these ‘managers would use their superior Jnowledge ofthe marketto invest ‘my money wisely so that my MPF account would sein value? ‘Weare entering the world of y Tuesday ov illusions Isee. In the first place, only inside information gives you superior knowledge of aimarket. You ‘st otherwise ask an astrologer, ‘The future remains opaque to all others. The superior knowledge ofa fund manager lis in how to deal on ‘amatket, notin knowing what that ‘market will do, ‘Second, your MPF manager has no interest in managing your money Wisely, at east not for you. You'rea captive. He just takes your MPF contribution from your employer every month, tellshis brokerto buy Hutch or Bank with itand then lends the shares out for another fee to ‘people who want to short the them underperform the benchmark Indices of the markets in which they invest. you don'tmind the paperwork you could probably do aswell Yourself The only barriers that you Keep telling yourself that youdon't ‘understand investment, You do that, don'tyout ‘Well, of course you don't ‘understand investment. Noone does, not really. We areall blind to the future, Youshould certainly not sive yourMPF-manager more credit than you give yourself. ‘And you do give yourselfsome credit you would realise that you ‘might have some ideas here and therefor makinga great deal more ‘money, doing anything from analysingaligatorsin Alabama to ‘zoning agguratsin Zanzibar. ‘idon'tinow what itisbut1 do know thatamongseven milion peoplein this town there re plenty ‘of great ideas for generating returns (020 percent and up on invested capital There always have been and always willbe "Except thatJohn Tsang doesn't realiseit.He had tobe told that the ‘MPF handout was abad idea Thursday and Sunday