Firm has been widening product range and boosting service enhancements
Since the launch of the MPF, Fidelity has undertaken major initiatives to promote greater retirement savings and as a leading MPF provider, it is continuously looking to enhance its service offerings. Asia Asset Management spoke to Fidelity’s Kerry Ching on a broad range of issues facing the industry and the challenges ahead.
AAM: What are the issues and challenges facing service providers like Fidelity in the MPF market in the next two to three years?
Ching: The biggest challenge is that the awareness of Hong Kong people having to plan for their retirement is still relatively low. MPF members do not have a habit of managing their MPF investments proactively. Although there was an improvement in the results of our Retirement Readiness Index, which increased from 43% to 54% this year; it still remains well below the 67% level of the pre-retirement income we think is required for a comfortable retirement living. Fidelity is committed to educating the public on the importance of retirement planning and the roles that MPF investments play, as well as keeping open dialogues with regulators, trustees and employers in preparation of the launch of Employee Choice Arrangement (ECA).
Another challenge is the limitations in product offerings – service providers are keen to launch more diversified and innovative products for members. However, there have been more concerns and stricter regulations ever since the financial tsunami.
AAM: On the question of fees, what is your view going forward?
Ching: We believe that there will be continued downward pressure on fees – in fact, some of the service providers have already started revising their fees. We believe that as assets accumulate, it is expected that operating costs as a percentage of assets will decrease over time. However, the savings may be partially offset by additional risk management and operational procedures that were put into place post-financial crisis. Hence, it is important to strike a balance between costs and benefits.
AAM: How has Fidelity been expanding its product range in the MPF market and what can employees expect in future?
Ching: Fidelity is one of the pioneers in introducing innovative retirement solutions to Hong Kong. In 2008, for example, Fidelity introduced to Hong Kong target-date funds, which employ age-based, dynamic asset allocation that will gradually change the portfolio mix from aggressive investments that offer high growth potential, to less risky investments that provide a greater measure of stability, as the retirement date approaches. They are designed to mature on pre-determined dates, which ideally match the retirement needs of MPF members and are particularly suitable for members that lack the resources and time to manage their pension assets actively.
We also have a comprehensive range of award-winning lifecycle products which are among Hong Kong’s top ranked MPF funds. Our lifecycle funds cover a wide range of balanced funds that have different weightings of equity, bond and cash that offer different risk profiles. We will continue to provide products that are suitable for MPF members and can deliver stable returns.
AAM: Can you please discuss the sandwich generation, the issues and the opportunities for Fidelity in the context of MPF?
Ching: On the sandwich generation, there are a number of issues to address. A Fidelity report on sandwich generation in August – those “sandwiched” between the competing demands of caring for both their children and parents – shows that sandwich generation in HK and China are feeling the most financial pressure across Asia. It is particularly important for the sandwich generation to have advance planning for retirement as the tremendous financial stress they are facing is likely to have a negative impact on their retirement security.
As people in the sandwich generation are less flexible financially, they need to be more disciplined in addressing their savings and investments. Advanced planning and regular reviews are particularly important for this group of people too.
In the long-run, the sandwich generation can invest in high-risk products. But they have to be aware that they should gradually change to low-risk investments two to three years before the time they want to use that money so that their money can be secured for their use during their post-retirement days.
As for the opportunities, we feel that besides being disciplined in savings and investments, the sandwich generation need to be more proactive in their MPF management. Our recent survey has shown that most of the respondents’ savings at the time of their retirement are not sufficient for post-retirement living. Therefore, the sandwich generation should consider making voluntary contributions to increase the “snowball” effect of time compounding.
Since they don’t have a lot of time given they have to take care of their families, the sandwich generation should consolidate their preserved accounts so that they can manage their MPF investments better and easier.
The importance of voluntary contributions and preserved accounts are two components of the MPF that we consistently communicate to our members. Consolidating preserved accounts, making voluntary contributions, reviewing MPF accounts at least once a year when the annual reports arrive and rebalance portfolios when necessary, are all very important steps that MPF members should take if they want their MPF investments to contribute significantly to the overall investment returns for retirement.
The sandwich generation should also consider investing in target-date funds which employ age-based, dynamic asset allocation that will gradually change the portfolio mix from aggressive investments that offer high growth potential, to less risky investments that provide a greater measure of stability, as the retirement date approaches. As target-date funds are designed to mature on pre-determined dates and proactively managed, the sandwich generation can leave their investments to the professionals and not have to worry about finding time to manage their MPF assets.
AAM: MPF is about the accumulation of retirement savings; in this context, how does Fidelity view growth in voluntary contributions and what has the firm done to capture the opportunities in this market?
Ching: Making voluntary contributions on top of the mandatory requirement of 5% could help achieve retirement goals earlier and easier. Contrary to personal investments in unit trusts or in stocks, voluntary contributions are free of the initial subscription charges and members do not need to pay any front-end commission on the subscriptions.
In the past ten years, voluntary contributions have not been encouraged extensively and therefore the take-up rate is rather low. In view of the ECA, employees can make their own decisions on which schemes to invest in. ECA will encourage MPF members to take better care of their MPF investments and with appropriate education of the advantages of voluntary contributions, I believe we may see an increase in the uptake of voluntary contributions.
This will help promote further positive developments in the MPF market. We have been promoting the advantages of voluntary contributions through our media articles and our investor education series throughout 2010.
AAM: As for post retirement, can Fidelity share its thoughts on the issues facing retirees now?
Ching: The issues facing retirees are increasing medical expenses and that they may also have to take care of both their parents and children. Because of better medical care and technological developments, life expectancies in Hong Kong are longer. In particular, life expectancy of women is longer than that of men. They should start saving earlier and they should be saving a larger amount of money than men. It has been a longstanding criticism of the MPF that it does not have appropriate rollover options to help members manage their savings post retirement. Fidelity has addressed this issue head-on with the launch of a retail fund, which provides a rollover option for our target-date funds. It provides a flexible income stream with monthly distribution and long-term growth for members even after they retire.
AAM: Briefly describe Fidelity’s service enhancements, especially the major initiatives, in the MPF market in the past decade.
Ching: We have spent considerable resources on enhancing our service delivery platform in the last decade.
Fidelity strives to continually improve its online services as part of its commitment to providing members with unparalleled client services. In 2009, we made it even more convenient for members to manage their investments online by bringing together our online services for MPF/ORSO and personal investments’ account holders onto one platform. Now users can login into one portal to get a comprehensive, consolidated view of their investments with Fidelity, along with enquiry functions and an extensive investor education library.
We have a proactive client communications programme in place. Fidelity directly engages employers to keep them abreast of the latest issues and help them tackle challenges relating
to the management of retirement schemes through regular seminars and conferences. For example, we organise Corporate Pensions Forum annually that addresses issues concerning our defined contribution and defined benefit clients, with presentations on the market outlook, asset allocation strategies and topical issues such as the ECA.
We also provide support and guidance to our investors through important market events. Fidelity believes that it is important to provide corporate clients and members with guidance during important market events so they can make informed decisions unaffected by market hysteria. We were particularly active during the financial crisis when we communicated with employers and
employees frequently through a whole range of client briefings,
direct mailing and Q&As, as well as media articles. In short, we have been committed to investor education right from the start of the MPF and will continue to do so.