A spokesman for the Mandatory Provident Fund Authority (MPFA) said that a review of the salary cap applied to MPF contributions was under way, and it had submitted its proposals to the government.

'Under section 10A of the Mandatory Provident Fund Schemes Ordinance, the minimum and maximum levels of relevant income for MPF contribution purpose are subject to review at least once every four years,' the spokesman said.

'In preparation for the next review, the MPFA has completed an analysis and submitted the preliminary results for consideration by the government.'

The spokesman said that the last adjustment to the salary cap was made in March 2003, and any further changes to income levels would require the approval of the Legislative Council, adding that the MPFA 'understood that the matter will be reported to Legco by the administration in the near future'.

The debate on MPF contribution levels and the shortfall in projected retirement incomes has raged since the inception of the scheme, but has taken on new urgency in the wake of surveys that show how short retirement incomes are likely to fall. A survey by HSBC, the biggest MPF provider, last year showed that almost half the respondents believed that their MPF and existing pension arrangements would cover less than 40 per cent of their target retirement fund amount.

Allianz Global Investors chief executive in Hong Kong Mark Konyn said it was widely recognised in the industry that the MPF would meet only a part of the retirement needs of members, adding that the level of additional voluntary contributions to the scheme had been a 'little disappointing', and would not compensate for the looming shortfall in retirement accounts.

Regional equity markets this year delivered handsome returns that could tempt members into believing their savings shortfalls could be made up if such returns could be repeated. That was unlikely, however, investment managers said.

Leading the pack of funds authorised for distribution to MPF members were Hong Kong single-country funds, which were on average year-to-date annualised returns to November of 33.4 per cent; followed by Asia (ex-Japan) funds (27.3 per cent), and European equity funds (26.1 per cent).

The weighted average return for all equity funds was 14.6 per cent.

At the other end of the scale, according to data from the Mandatory Provident Fund, were capital preservation funds on a simple average of 2.8 per cent, while many funds returned below 1 per cent.

Sally Wong, executive director of the Hong Kong Industry Funds Association, said investor education about which funds to invest in and how much money was required to fund an adequate retirement were key issues the industry needed to tackle.

'If one is to maintain the same standard of living post-retirement, one needs to have a replacement ratio of about 70 to 80 per cent of the salary received immediately before retirement,' Ms Wong said.

'Assuming an employee contributes for about 30 years for MPF at current rates, he or she can probably at best achieve a replacement ratio of about 30 per cent.'

To make up the shortfall, Ms Wong said, employees would have to save more for their retirement.

'So far, we have seen some pick up in MPF voluntary contributions, but not at an overwhelming level, with a trend that has remained stable at about 9 per cent of industry assets,' she said.

This was probably because there were psychological barriers to overcome, she added, with savers focused on the present rather than considering what conditions would be like in future.

'It is incumbent for the industry and the government to relay the message clear and loud. MPF is a good starting point, but it is definitely not enough,' Ms Wong said.

'Start to save and invest as early as possible for retirement purposes - only by so doing can the compounding effect come into full play.'

That advice was echoed throughout the industry.

Nicholas Rogers, investment director and head of institutional business for Fidelity Hong Kong, said: 'Existing contribution levels would not solve the problems of looming shortfalls ... It is going to be up to the government and the people of Hong Kong to decide whether an increase in contribution levels is desirable.'

Raising MPF contribution levels and the performance of investment portfolios was the key challenge to the success of the system, he said.