Towers Watson: What changes or enhancements do you think members would like to see and how realistic are these?

There have been lots of suggestions made by various parties. However, the MPF is all about individual choices. We need to seek feedback from MPF members and offer what they need. Based on the market players’ experience, let’s hear their views:-

RCM

Elvin Yu, Head of Business, Hong Kong and China, “If the early years of the MPF were characterized by the need for employers to comply and for service providers to ensure a hassle free administration, then increasingly investment performance is proving to be the main concern of members in retirement planning. As a result, better fund performance is expected to become paramount as greater choice for members to choose their investment options from the entire market comes in to effect.”

Schroders

Kelvin Lee, Head of Institutional Business, “As the MPF system continues to develop, members nowadays are getting more sophisticated. They are looking for more fund choices as well as choosing their own service providers that could best suit their needs. Currently the government is in the process revamping the MPF scheme to meet the growing demand from the public. One such proposal would be to allow all the employees to freely choose their preferred MPF scheme providers. However, after the Lehman minibond event, one probably needs to be very careful in striking a good balance between offering more choices and making sure that people put their retirement money in the right strategy.”

Fidelity

KP Luk, Head of Institutional Business, “In addition to the launch of ECA, I think members would like to have a total right of choice which includes their employers contribution/benefits eventually. Although this may not be feasible in the short run while employers still have concerns that this may eliminate their off-set power to long service payments and the possible administrative burden that would bring to them, I personally think this could be a subject worth exploring and for the whole community to discuss.”

Invesco

Desmond Ng, Chief Operating Officer, Asia ex Japan, “I believe what members would like to see is a wider range of products. More fund choice can better serve the needs of different MPF members; in contrast, members may find it difficult to select the right one for them with a sheer range of funds.”

Principal

Stanley Yip, CEO, “Increase contribution rate

At present, both employer and employee each contributes 5 percent of employees’ salary, capped at $1,000 each. The existing contribution rate is low compared to countries like Singapore (Employer – 15.5% and Employee – 20%) and Australia (9%).

With longer life expectancy, average age of 79.3 for males and 85.5 for females, retirement savings must last for 20 to 25 years after retirement. In general, retirees will require around 60-70% of their pre-retirement monthly income in order to sustain their current living standard.

Take a member who aged 35 with $20,000 monthly salary and assume a yearly MPF investment growth of 5 percent. He will have about $1.6 million when he retires at 65 but he actually needs about $4.2 million for retirement life (with an average annual inflation rate and expected rate of return on investment at 2 percent and 5 percent respectively). Thus, the accrued benefit of the mandatory contribution is insufficient to support him to meet the financial needs after retirement. If he intends to maintain his standard of living for 25 years till the age of

90, he will have to add 10 percent of his salary in addition to his mandatory monthly MPF contribution and he will have extra $2.4 million when he retires.

Provide tax incentives on voluntary contribution

The participation rate for voluntary contribution is low partly because of the lack of tax incentives.

It is believed that more people are willing to participate in voluntary contribution if tax concession is introduced.

 Increase flexibility in withdrawal of accrued benefits

Members can either withdraw or retain their accrued benefits in a lump sum at the age of 65. A partial withdrawal and installment payments are proposed to increase the flexibility for members on financial and retirement planning.

Broaden product range

More diversified products such as funds denominated in renminbi or yuan-linked funds should be introduced.”

AIA-JF

Bonnie Tse, Senior Vice President and Managing Director, “Members generally look for lower fees, more fund choices, better fund performance, etc. All of the said enhancements are achievable and healthy competition will encourage MPF service providers to continue their improvements in these areas.”

AMTD

Alan Tsang, CEO, “明白市場上有聲音要求減低強積金的管理費,相信很多強積金供應商已積極研究這項目,定會設在合理水平,亦知道有成員希望能增加基金種類及加快推出僱員自選安排。”

AXA

Benjamin Li, Chief of Pension and Broker Channel, “We have often seen and heard the public voice that they are hoping to a more competitive MPF fund charging structure. AXA sees room for charge adjustment but that will settle to a level soon. Members are worried that the MPF would not offer enough for retirement. They may want to have a guaranteed option to be provided by their service provider, which is able to guarantee the accrued benefit by the time they reach the age of 65. Members are aware of their responsibility to manage their own MPF account, e.g. performing account consolidation or fund switching; however, they find the relevant procedures too clumsy. Simpler procedures and better customer services are expected.”

BEA

Patrick Li, Chief Executive, “There should be a review on the feasibility of increased incentives, such as tax incentives, for MPF members who are willing and able to make voluntary contributions. Such a measure could only be achieved with the support of the government.

Members would like to have more fund choices that best suit their risk appetite and investment style. Such a measure could be achieved with the support of the government and MPF service providers.

Besides, the easiness on accessing MPF funds information should be enhanced. Members would like to obtain more information from their service providers and from MPFA so as to increase their understanding of the MPF schemes. Such a measure could be achieved by organising ongoing investment and enrolment seminars by the MPF service providers to members on how MPF can help them achieve their retirement goals, what type of MPF funds are suitable for their needs, etc.”

ING

Wilsome Chow, CEO, “Some members may expect a higher return from their contributions. As MPF is a long-term savings and wealth accumulation process, members should have a clear vision of their goals matched by their respective risk tolerance. Additionally, greater flexibility relating to their contributions in terms of investment opportunities may be expected. The foreseeable launch of ECA will be a system welcomed by these members regarding the mobility of their contributions with the possibility of maximizing returns.”

Sun Life Financial

Billy Wong, Vice President, “I think members are looking for a wider range of investment vehicles (e.g. RMB related investment). I see this would take some time to make it happen.”

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.