Towers Watson: What benefits do MPF members get by contributing voluntarily?

五月 5, 2011
Joe Chan

According to latest census, the life expectancy has been improving and we will face the fact that we will live longer. Therefore, our retirement life could be as long as 20 years. How can we make sure that we have sufficient savings for this long period. Let’s hear what the market players’ views on MPF voluntarily contributions:-


Stanley Yip, CEO, “Making voluntary contributions such as the Principal Special Voluntary

Contribution (SVC) on top of the mandatory requirement of 5 percent could help achieve retirement goals.


Contrary to personal investments in unit trusts or in stocks, there is no initial subscription charges when making voluntary contributions and members do no need to pay any upfront fees on the subscriptions.


Members can make a lump-sum investment or invest on a monthly basis. SVC investment can be withdrawn at any time to meet immediate financial needs.


The MPF system is highly regulated by both the MPFA and SFC. Therefore, all MPF funds are required to comply with the stringent investment restrictions under the MPF legislation. The use of high-risk structured products and leveraging are prohibited. MPF investments are usually lower in risks and fluctuations as compared with mutual funds investments.”


Kelvin Lee, Head of Institutional Business, “Topping up the voluntary contributions will enhance members’ financial strength upon retirement. In addition, MPF is more cost effective as the fees are generally lower than retail funds.”


Elvin Yu, Head of Business, Hong Kong and China, “Considering adding voluntary contributions to an existing MPF account or setting up regular savings plans will help to smooth investment performance and allows savers to benefit from compounding.”


KP Luk, Head of Institutional Business, “The benefits of making voluntary contributions are really 1) extra savings for better retirement; 2) help people to make investments in a more disciplined manner which eventually will benefit from dollar cost averaging.”


Desmond Ng, Chief Operating Officer, Asia ex Japan, “In general, retirees need to have 60-70% of their pre-retirement monthly income every month in order to maintain their current living standard.


As mentioned earlier, the current monthly contribution of 10% is just not enough. Another example that we can use as reference is Australia’s Superannuation. Superannuation is a retirement (including pensions) program in Australia. Since its introduction, employers have been required to make compulsory contributions to superannuation on behalf of most of their employees. This contribution was originally set at 3% of the employees’ income, and has been incrementally increased by the Australian government. Since 1 July 2002, the minimum contribution has been set at 9% of an employee’s ordinary time earnings.


Though there is general widespread support for compulsory superannuation today, it was met with strong resistance by small business groups at the time of its introduction who were fearful of the burden associated with its implementation and its ongoing costs. After more than a decade of compulsory contributions, Australian workers have over $1.177 trillion in superannuation assets. Australians now have more money invested in managed funds per capita than any other economy.


Therefore, we think employees should start saving up by making Voluntary Contributions as early as possible. If you begin VC at the age of 30, making HK$1,000 extra contributions, you can save an additional HK$1.6 million to your retirement amount.”


Bonnie Tse, Senior Vice President and Managing Director, “As mentioned earlier, the 5% mandatory contribution is a good basis to start off, but it is probably not enough for a comfortable retirement. With the power of Dollar-Cost-Averaging and compounding effect of investment, making voluntary contributions can definitely supplement the mandatory contributions for a better chance to attain a comfortable retirement.


The other benefit of making voluntary contributions is easy management; it saves member’s time and effort to study the feature of other investment products, as they are already familiar with the MPF platform.”


Alan Tsang, CEO, “在經濟能力許可下為自己退休作更大保障。”


Benjamin Li, Chief of Pension and Broker Channel, “Under the current MPF system, MPF is capped at HK$1000 per month from each of the employer and the employee. I think members, especially those who earn more than HK$20,000 per month, should not restrict themselves, but try to contribute more voluntarily, and save more for the future.


1. The MPF provides a very convenient and flexible platform for employees to build a nest egg. Many workers do not realise that voluntary contributions to the MPF are not locked in until the age of retirement like mandatory contributions, but can be withdrawn as and when you need it,


2. There are always different choices available in the market to suit people with diverse needs.

Retail funds offer great range of choices for people to invest in, but for those who are less risk savvy, and not familiar with investment, MPF is definitely a good and prudent tool for wealth management.


3. Safe and balanced choice: MPFA governs the operations of MPF funds strictly. An MPF scheme usually provides choices of equity funds, bond funds, balanced funds, guaranteed funds and capital preservation funds. According to existing legislation, each MPF scheme must comprise at least one capital preservation fund which invests in short-term high quality Hong Kong dollar debts and short term Hong Kong dollar bank deposits. In addition, high-risk funds such as warrant funds are not allowed in an MPF scheme, while regional, country or sectorial equity funds are also available in the retail market.


4. Lower costs to clients: No fund switching costs, and the minimum threshold required by retail funds for initial investment is higher than MPF funds. For an employee earns HK$15k per month, the mandatory contribution will be HK$750, which may not be high enough to fulfill the entry limit of retail fund, but he/she can still eligible for investment on the MPF platform as it does not have such an entry limit.”


Patrick Li, Chief Executive, “1. Other than the 5% mandatory contribution, members can increase their retirement fund amounts by making different levels of voluntary contribution according to their different retirement needs.


2. Furthermore, making voluntary contributions in the same MPF schemes is easier for the members to manage. More fund choices can also be found in MPF schemes for them to alter at different life stages and economic cycles.”

China Life

Thomas Tam, General Manager, “Members should understand that MPF contributions constitute only part of the retirement savings of a member. To secure a worry-free retirement life, members should consider making additional MPF contributions (voluntary contribution), insuring savings insurance or other investment vehicles.


Currently, most people don’t realize the merits of voluntary contributions. The merit lies in cost-effectiveness and dollar cost averaging. In general, no subscription cost is imposed on the contributions, and no redemption charge is levied on withdrawal of contributions. And, there is flexibility on the contribution amount. What’s more, if people invest a fixed amount of money on a regular basis, they do not need to predict future market trend, this dollar cost saving approach can effectively mitigate the impact of short-term market fluctuations over the long term. The voluntary contributions enlarge the MPF reserves and uplift the standard of living of the retirement life.”


Wilsome Chow, CEO, “The members are able to save additionally on top of the compulsory amount through the existing MPF platform. Moreover, this gives the members flexibility regarding their retirement planning.”

Sun Life Financial

Billy Wong, Vice President, “We believe that the fee in the MPF scheme is generally lower than other similar investment products.”


This article is not intended to provide investment advice. Action should not be taken on the basis of any opinion, view or statement contained in this article without seeking specific advice. Towers Watson neither endorse nor are responsible for the accuracy or reliability of any opinion, view or statement made in this article, and under no circumstances will Towers Watson be liable for any loss or damage caused by any reliance thereof.

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