Viewed by the government as an important cornerstone of Hong Kong's retirement planning processes, the Mandatory Provident Fund (MPF), which has about HK$350 billion under management, is still regarded with indifference by many employees who make their monthly contributions.
Last year's Towers Watson MPF Survey revealed that while most employees believe present contributions are insufficient, employees and employers have no idea how much is required at retirement. In addition, most employees either do not know or could not remember which type of funds their MPF contributions were invested in. At present, members have on average HK$140,000 invested in their MPF accounts.
'There is a certain amount of misunderstanding surrounding the MPF scheme, it will continue to take time, but awareness is generally improving as the sums invested continue to increase,' says Naomi Denning, Towers Watson managing director of Investment Services Asia-Pacific.
Like many financial professionals, Denning believes MPF members' interests could be stimulated if the government were to introduce incentives such as a tax break to encourage voluntary MPF contributions to supplement other retirement investments. The Towers Watson survey indicates that the majority of surveyed employees are willing to contribute more into their MPF if higher tax-relief or employer-matching incentives are provided.
Denning and her colleagues have also been vocal on the issue of administration fees, one of the highest components of MPF management costs. She says it is worth looking at the United States retirement scheme model where administration fees are charged at a flat rate. 'If we see aggregate fees levels come down, MPF contributors may recognise the cost-effective structure of the MPF scheme could supplement their investments. If this were to happen they could also discover that MPF funds might be cheaper to invest in than some mutual funds,' Denning says.
In February, Hong Kong's largest MPF provider, HSBC Insurance, announced it would cut management fees on three of its lower-risk funds by 20 to 40 per cent. Across the three funds, assuming employer and employee both contribute HK$1,000 per month, a MPF member would save HK$5.20 to HK$12 per month. Meanwhile, MPF provider AXA also announced it would reduce management fees by 46 per cent on average to a range of 0.99 to 1 per cent across a range of funds.