Delays in planning could be a costly error

PUBLISHED : Wednesday, 30 March, 2011, 12:00am
UPDATED : Wednesday, 30 March, 2011, 12:00am

Attitudes towards retirement funds are changing as more people are becoming dependent on their savings.

People are more aware that the Mandatory Provident Fund (MPF) is a key way to save for retirement by using one's own savings and employer contributions.

However, those who have not started planning a long-term investment fund could be losing out and they are urged to find the right MPF, as there is a need to choose the right MPF scheme to support individual goals.

HSBC is the largest mandatory provident fund service provider in Hong Kong and, in an HSBC Asian Insurance Monitor survey, it found more than half of people in Hong Kong plan to fund their retirement using their own income, cash savings and investments. The survey also revealed that about 29 per cent of respondents expect their employers to contribute most of their retirement funds.

With worries over medical expenses, the growing cost of education and some wanting a better quality of life for their family, the line between short-term and long-term wealth goals is fast diminishing, making retirement saving more challenging.

The advice is to seek guidance to structure an MPF investment to one's own individual needs and to keep in mind that it is a long-term investment, and to build on a regular savings habit, choose products that have funds that allow them to maximise growth and cover a long-term investment.

Robert Lang, managing director of HSBC Insurance Businesses, Hong Kong, says: 'We would advise customers to look at a broad range of issues, fee being one, return, trustworthiness of the provider, flexibility - all the things you would look at in an MPF account.'

But it's important not to leave planning too late.

'What we would like to say is that there is a cost of delay,' Lang says. 'The danger is putting off savings until later. The sooner customers start saving the better equipped they will be for retirement.'

Lang believes there is a need for people to beware of volatility, and that members need to recognise that the MPF is a long-term investment and resist the temptation to make short-term decisions on investments.

As a long-term investment, members should stick to the principals on which the investment was made and not react to short-term fluctuations.

Any concerns should be discussed with an adviser.

Since last year, HSBC has seen people shift their asset allocation and move away from the capital preservation fund and the guarantee fund into the Hang Sang tracking fund and equity fund.

It is believed that members are starting to be more optimistic about the returns they can get from equities and they are less worried about potential falls. As the market improves, the focus is to build on saving habits to match saving strategies to meet long-term needs.

Being the market leader in MPF portfolios, Lang believes the HSBC has a responsibility to the Hong Kong market and lead in the development of MPF.

As a response to public and government expression of concerns over the options that are available to investors, HSBC has rolled out ValueChoice to offer a wider choice of funds.

It hopes to encourage people to take greater individual responsibility for their retirement, as many are not as dependent on the government and more are dependent on employers and, specifically, individuals.

ValueChoice covers a larger number of constituent funds with underlying investments focused on index-tracking collective investment schemes (ITCIS). The scheme comes with lower management fees ranging from 0.79 per cent to 0.99 per cent.

MPF members can choose from an expanded range of schemes that includes 'SimpleChoice', the first MPF scheme in Hong Kong that automatically allocates contributions according to the age of members.

There are also 'SuperTrust' and 'SuperTrust Plus' schemes that provide members with more fund choices focused on active portfolio management.

Looking ahead at the MPF in the long term, Lang believes HSBC has a responsibility to Hongkongers, to enforce a sense of trust and to remain committed to ensuring customer confidence in it.

'I think the government needs to provide incentives for people to take greater personal responsibility. Should that be the form of tax relief? That should be an issue of public policy,' he says.

'Our view would be the government needs to consider all options to encourage individuals to take greater personal responsibility.'