Voluntary contributions are on the rise
When assessing the status of the local MPF industry, Peter Crewe, managing director of AIA Pension and Trustee Company, can see clear signs that the market is starting to evolve. In the early days, it involved service providers and employers, but now the relationship between providers and individual members is taking on far greater importance.
'With near full employment in Hong Kong, some people may have switched jobs two or three times since the MPF scheme was launched,' Mr Crewe said. 'Therefore, they are taking more interest in what to do with their consolidated benefits.'
He said the decision about whether to leave various accrued benefits with a former employer's service provider, to transfer them to a new employer's scheme, or to consolidate them with a trustee of one's own choice was becoming a significant factor. Two other triggers had caused members to take more interest in their accumulated assets. One was the bull market, which had inevitably led individuals to monitor the performance of funds more closely and had created new interest in making additional contributions.
'We are starting to see more activity there. In the past 12 months, we saw the amount of additional voluntary contributions increase from 12 per cent to 16 per cent and I believe this trend will continue.'
The second was a 'psychological tipping point'. This related to the fact that average accrued benefits for many scheme members were getting close to HK$100,000, representing a substantial holding.
To ensure people made the correct decisions, Mr Crewe said it was vital to provide them with enough of the right information.
'The level of [financial] education has improved, but we are always conscious that knowledge levels differ greatly. So our focus as an organisation for next year will be employee education, as well as the performance of the underlying funds.'
He emphasised that service providers and trustees should never lose sight of the fact that many MPF members were blue-collar workers investing a little every month. Therefore, a key principle had to be to 'keep it simple' and to make ongoing efforts to educate people to understand their risks.
To do this, he said the company had a team of qualified instructors to conduct detailed employee briefings. In these, they explained market trends, the performance of funds versus benchmark, the relevance of peer-group measures, and the portability of benefits.
And to tackle individual concerns, a help desk was often set up on site for a few days at employers' premises to answer more complex inquiries or those involving personal investment decisions.
'We have seen that leads to quite proactive engagement,' Mr Crewe said, adding that the company website had been revamped to include more education tools plus all fund performance details that were in the public domain.
AIA's pension business in Hong Kong works with about 36,000 employers with close to 600,000 individual members, and has more than HK$40billion in assets under management.
'More than 50 per cent of those assets are in our three lifestyle funds,' Mr Crewe said. 'But in the last couple of years, we have seen a gradual movement towards equities. The quickest growth has been in our Greater China equity fund, which now has about HK$2billion.'
Considering the overall outlook for next year, he said subprime worries would have an impact on the performance of funds with exposure to United States and European equities. However, fund managers all had their own investment processes, and it was up to them to find the opportunities still out there.
'In terms of options, Asia still tends to be the focus. But you always need to keep in mind that individuals are saving on a monthly basis over a 20- to 25-year horizon. There will be peaks and troughs in the cycle, but with dollar cost averaging, people will get better returns.'
With an eye on long-term returns, AIA recently launched passively managed world equity and global bonds fund, and Hong Kong's first socially responsible MPF investment fund. Mr Crewe believes the 17 funds offer a good choice, and he does not see a need for a 'supermarket'.
'I don't think the consumer is ready for 60 or 70 funds. It could lead to confusion and that leads to apathy.' He said AIA had made a point of studying the 401K scheme in the US and believed that individual investors in Hong Kong were offered the right balance of fixed-return and higher growth instruments.
Regarding scheme members being able to choose the service provider for their current contributions, Mr Crewe expected no imminent regulatory changes.
'Pragmatically, I think it should be delayed two or three years, as some members have quite a low knowledge base,' he said. 'The focus for the industry and the government should be on individual education, otherwise there will be mistakes.'