The Hong Kong’s Mandatory Provident Fund (MPF) scheme marks its 20th anniversary two weeks from today (1 December), a significant halfway milestone on becoming fully fledged.
Mercer’s annual MPF Forum had its agenda organised around the road travelled so far by the system, and what may lie ahead. The virtual MPF forum was held on 4 and 5 November.
In her opening speech at the two-day forum, which saw close to 500 registrations, Janet Li, Mercer’s wealth business leader for Asia said, “This has been an unprecedented year for everyone and the global economy. It’s also a remarkable year for MPF. Not only does 2020 mark the 20th anniversary of the MPF System, this is the year when the MPF asset value exceeded HK$1 trillion.”
She went on to share assessment of the Hong Kong retirement income system against a long list of developed and emerging markets, where it ranked 17th globally and ranked second in Asia, according to the Mercer CFA Institute Global Pension Index. Hong Kong tops Asia for integrity but lags behind the global average of 60.8 for adequacy. While its high integrity score reflects a strong foundation for the MPF System to evolve and grow; the System currently is not sufficiently mature to support the post-retirement life of the general public.
“The pension issue is everyone’s issue. Nobody can escape from that. It is probably the most important issue for everyone nowadays,” echoed Claudius Tsang, CFA, Director and Advocacy Committee Chair, CFA Society Hong Kong, who joined us to share CFA’s thoughts on the Index
Tsang added that an employer’s focus on diversity and inclusion can better support women with their retirement needs. According to the CFA Institute’s research, women in Hong Kong generally have fewer years in paid employment compared to men. On average, their compensation is also less than men, and they tend to have a less aggressive investment strategy than men for their savings. He explained female employees need to understand what kind of retirement life they want and how much they need to achieve that.
The future of MPF as told by the MPFA
Cheng Yan Chee, Chief Corporate Affairs Officer and Executive Director of the Mandatory Provident Fund Schemes Authority, used the World Bank’s outcome-based assessment framework to evaluate the current MPF System. He concluded that the current MPF System is doing well in terms of its coverage, sustainability and security, while there will be room for improvement in terms of adequacy and efficiency.
He encouraged employers to bolster the retirement protection for their employees by making voluntary contributions and offering advice on how best to manage their accounts.
“If your employees are happy, your business will be happy,” Cheng said.
He also shared the Authority’s plan to launch the eMPF Platform by the end of 2022, at the earliest.
“The one-stop electronic platform can help employers and the self-employed make and manage contributions more easily. It reduces paperwork and human errors, and has a reminder function of the contribution due date. The higher efficiency resulting from the launch of the eMPF Platform will lower the administration costs concerned, thereby creating room for further fee reduction,” he said.
Advice for employers and HR
The forum was also supported by MPF providers — AIA, BCT, Manulife, Fidelity, Principal Asset Management, and Sun Life, who unanimously said that Hongkongers are saving too late and too little. They pointed out longer life expectancy, behavioural issues such as investing savings in stocks while in retirement, and low level of financial literacy are some of the many reasons why Hongkongers should think about their retirement plans now.
They appealed to Hongkongers to start early, be proactive in managing their MPF accounts, make voluntary contributions as early as possible, and factor in rise in medical costs during retirement when determining the spending to forego today in order to have a more secure retirement.
As for employers, they can add incentives for employees to help change behavior. For example, matching employees’ voluntary contributions or helping employees understand what they need when they hit retirement. Mercer’s senior consultant Freddie Cheng echoed that the employers who made voluntary employer contributions, consider the motivation of shouldering the additional cost to be for retention of staff and better retirement protection for employees.
While the HR department is the communication channel in the workplace, the
2020 Hong Kong Defined Contribution Retirement Scheme Survey report also revealed only 4% of employees will go to HR for MPF advice.
Therefore, Cheng urged employers and HR to collect employee feedback more frequently and deploy different communication channels and styles for different employees.