MPF Market Watch: handout U-turn, choice delayed, Q1 fund gains

(Editor’s note: this report was originally in English and is rewritten in Chinese per this site’s practice.)

Hong Kong’s MPF market in 2011 so far: Financial Secretary John Tsang scrapped a HK$6,000 injection into every MPF account on March 2, switching to HK$6,000 cash for every permanent resident over 18; the MPFA is reviewing contribution income thresholds; member choice is pushed back to July 2012; and MPF funds averaged a 1.19% gain in Q1.

Why scrap the MPF injection?

Money locked until 65 can’t relieve pressure now. The HK$24 billion injection was attacked for offering no immediate relief — MPF cash-outs only come at 65 — and for ignoring those without MPF accounts: housewives, retirees and civil servants. The revised measure hands the same amount to every permanent resident over 18, costing up to HK$37 billion, and polls show it’s more popular.

What is under review on contributions?

Maximum relevant income may rise from HK$20,000 to HK$30,000. The MPFA is reviewing whether to lift the maximum relevant income level, which would raise maximum monthly employer and employee contributions from HK$1,000 to HK$1,500 each; the minimum threshold may rise from HK$5,000 to HK$5,500. Timing depends on government-legislator consultation.

When does member choice arrive?

July 2012, renamed the Employee Choice Arrangement. The government released regulatory details for MPF intermediaries for a one-month consultation before Legco; if passed, employees choose their providers from next July. Treasury permanent secretary Au King-chi noted that today about 250,000 employers choose providers — letting 2.3 million employees choose could make salespeople more aggressive, hence legislation to regulate and penalise misleading conduct. All 28,365 existing MPF salespeople and new entrants must register with the MPFA. Markets expect around 60% of MPF assets (over HK$200 billion) to become freely transferable, with competition cutting management fees.

How did funds do in Q1?

Up 1.19% on average, equities leading. Lipper data shows MPF funds gained 1.19% on average in Q1: equity MPFs rose 1.71%, mixed-asset 1.17% and bond MPFs 0.89%. Pharma and health equities led at 6.84%, North America gained 5.55% and Europe 5.42%; Japanese equity MPFs fell 3.83%, the worst performers.

To track MPF policy and fund performance, visit MPF fund comparison.