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Mercer Launches Hong Kong Mandatory Provident Fund Index

Consulting firm Mercer has launched a monthly index, the Mandatory Provident Fund Satisfaction Index, which will measure the satisfaction level of Hong Kong residents toward the Mandatory Provident Fund (MPF) system.

“We believe that the survey will provide useful insights on the MPF system and hopefully to improve understanding of satisfaction with the scheme,” said Billy Wong, Mercer’s wealth business leader for Hong Kong, China, and Korea.

The MPF is a compulsory pension fund for retirees in Hong Kong. In its inaugural survey for April, the index registered a 50.3 on a scale of a possible 100, with only 11% of respondents saying they were “satisfied” with the MPF system. Nearly 60% indicated they are “dissatisfied,” and only 31% deemed the system “fair.”

The survey found that younger employees seem to be less satisfied with the MPF system than their older counterparts. The average satisfaction index for respondents aged 55 or above was 66.4, compared with 47.3 for those aged 35 to 54, and 45.59 for those aged 20 to 34.

“To younger workers, retirement planning may seem like a distant matter which does not require immediate attention, while some may wish they had the funds to invest in other ventures,” said Wong. “The Mercer MPF SI offered us very interesting insights as to the different needs and sentiments towards MPF or retirement among employees in different life stages. These differences will be important for MPF providers and government bodies to keep in mind when devising retirement planning or MPF communications and education.”

The monthly survey was conducted among Hong Kong workers aged 20 to 65 on Mercer’s behalf by market research firm Nielsen. The survey examined knowledge, understanding, and satisfaction with the MPF system, as well as with current MPF-related developments.

The survey results also showed a lack of confidence among employees that the MPF will meet their retirement needs. Although 43% of respondents had average expectations when asked if the MPF would cover their post-retirement expenses, 36.8% had “low” or “very low” expectations, while only 21.2% had high expectations.

The survey also found a positive correlation between how knowledgeable a respondent is of the MPF system and their satisfaction with it. The average satisfaction index for those who deemed themselves “not knowledgeable” about the MPF system was 42.1, compared to 47.5 for those who considered themselves as having “average” knowledge, and 52.8 for those who considered themselves “knowledgeable.”

“Depending on individual needs and goals, it is good practice for employees to review their MPF portfolios at least once a year,” said Wong. “It is important for all stakeholders, including the government, MPF providers, and employers to work together to fill this knowledge gap.”

Younger Hong Kong workers dissatisfied with MPF

Younger Hong Kong workers are less satisfied with the territory’s Mandatory Provident Fund (MPF) system, probably because they see retirement planning as a distant matter compared to older counterparts who are closer to retiring, according to Mercer, a US-based investment consultancy.

This was a notable finding in the company’s newly-launched Mercer Mandatory Provident Fund Satisfaction Index, which measures the level of satisfaction about the MPF.

On a scale of 100, the index was at 50.3 in April, in the first reading of the gauge, Mercer said in a May 25 statement. The finding was based on a survey of Hong Kong employees conducted by Mercer and market research firm Nielsen last month.

Some 58% of the 207 respondents said they are dissatisfied with the MPF system. Another 31% described it only as fair, and just 11% are satisfied.

Younger workers are the least satisfied. The average reading for respondents aged 20-34 was 45.59, and 47.3 for those aged 35-54. By contrast, the average reading for workers aged 55 and above was 66.4.

“To younger workers, retirement planning may seem like a distant matter which does not require immediate attention, while some may wish they had the funds to invest in other ventures,” Billy Wong, wealth business leader of Hong Kong, China and Korea at Mercer, says in the statement.

According to Mr. Wong, the index offers “very interesting insights” about the different needs and insights among employees at different life stages.

“These differences will be important for MPF providers and government bodies to keep in mind when devising retirement planning or MPF communications and education, to ensure that the content caters to the specific needs of the audience in different age groups,” Mr. Wong says.

He tells Asia Asset Management that survey respondents do not fully appreciate that most retirement plans invest conservatively to preserve capital.

He says the survey also suggests that workers may not be aware of the Default Investment Strategy (DIS), the recently-launched mechanism that offers automatic rebalancing of risk and income versus growth as investors approach retirement.

Only 38.2% of respondents knew what the DIS was, while 40.1% were aware of, but didn’t know what it was. Another 27.7% were unaware of its existence.

“Mercer will release the index figures on a monthly basis. We aim to collect the data from more than 2,000 Hong Kong employees every year. We will make detailed suggestions on how to improve the retirement system when we have a clear pattern on the index trend,” Mr. Wong says.

Mercer predicts MPF challenges ahead

Retirement challenges are a world wide phenomenon, with all developed economies dealing with one form of the challenge or another. The points below summarise Mercer’s outlook for Hong Kong: 

  • Hong Kong is a society which values its aging population. The high life expectancies indicate that many of us will live well beyond retirement age. Current structures are likely to apply extreme stress to future workers given changing age structures, and are likely to involve an increasing level of failure to allow older people to live with the dignity they deserve.
  • Some simple changes can be learned from other countries and introduced now. This will help Hong Kong to evolve and offer its citizens a better retirement system.
  • MPF providers have both the opportunity and responsibility to review their positions – are they operating as efficiently as possible? Some providers are starting to cut their fees – we await responses to see if the general level of fees in the market will reduce.
  • There is likely to remain a question mark over the smaller providers – are they big enough to operate efficiently? Should they look at how they can reduce costs? Should the MPFA impose minimum size requirements to encourage efficiency, or be more direct and impose explicit maximum fees providers can charge members?
  • Employers should consider their fiduciary duty in selecting the best MPF provider for their employees. There is currently a misalignment in that the employer selects the MPF provider but the employees pay for the services and bear the investment risk.
  • Much can be done to develop the withdrawal phase of the system so that part of the accumulated balance at retirement is safeguarded well into retirement.
  • The design of the MPF can be evolved to encourage higher savings rates by both employers and employees and allow employers to use the MPF system to efficiently provide retirement benefits in a way that will attract and retain the best employees.
  • Providing individuals with education and tools to engage them in their financial future and also empower them to make the right choices on their retirement savings is crucial.
  • Fees in the MPF system remain high relative to other markets. Measures that increase competition and drive down fees should be encouraged.
  • Doing nothing is not an option. Some form of action is needed to keep Hong Kong where it belongs – One Step Ahead.

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