Towers Watson: how should the MPF system be improved?

The MPF turned ten in 2010, but nobody calls it a perfect retirement system. Towers Watson gathered suggestions from market players on where the government should improve it.

Should contribution rates rise?

Many firms say 5% each from employer and employee is simply too low — Hong Kong should look to Singapore’s CPF. Schroders’ Kelvin Lee noted Singapore’s employer/employee CPF rates of 15.5% and 20% dwarf Hong Kong’s; higher rates are needed for longer lives and rising healthcare costs. Invesco’s Desmond Ng agreed the rate deserves review — an HKIFA study found about 82% of respondents knew the MPF alone wouldn’t fund their retirement.

How do you make voluntary contributions attractive?

Near-unanimous answer: tax incentives for MPF voluntary contributions. Fidelity’s KP Luk, AIA-JF’s Bonnie Tse, AXA’s Benjamin Li, BEA’s Patrick Li and Hang Seng’s Wilson Tang all argued that, as in Australia, tax breaks for extra contributions work powerfully.

What would the Employee Choice Arrangement change?

Letting workers move their employee-contribution portion to a scheme of their choice at least once a year is the key to wider choice. RCM’s Elvin Yu said rising job mobility has taught employees to compare providers’ fund performance and service, and the old restriction to the employer’s scheme looks outdated. The ECA, originally due in 2010, was delayed for intermediary training — some 70% of Hong Kong’s 20,000 registered intermediaries are insurance agents.

What else is on the wish list?

Looser investment limits, phased retirement payouts, higher income caps. Tse suggested relaxing limits such as emerging-market exposure; Li’s four points: raise the relevant-income ceiling, tax breaks for voluntary contributions, more fund choices, and monthly payouts instead of lump-sum withdrawal at retirement. China Life’s Thomas Tam urged the government to drive home that “the MPF may not be enough”, and for members to mind their own accounts.

For MPF voluntary contribution rules, visit the MPF education centre, or compare scheme fees at MPF fund comparison.