White Collar
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MPF retirees need more investment advice

Regulators, fund providers must more to educate investors on what to do with their MPF contributions

PUBLISHED : Monday, 05 December, 2016, 6:06pm
UPDATED : Monday, 05 December, 2016, 10:23pm

Plans should be put in place by the authorities – particularly The Mandatory Provident Fund Schemes Authority (MPFA) and the Securities and Futures Commission (SFC) – to educate the elderly on their investment options after they have ended their contributions to the national pension scheme.

As increasing numbers of Hongkongers head for retirement, many have never had to make any investment decisions.

Of the 2.8 million workers and self-employed people covered by the Mandatory Provident Fund, around 600,000 have not chosen how to invest their MPF.

In April the MPFA plans to launch a default investment strategy, formerly called the “core fund reform”, which will require all 18 MPF providers to offer members a default investment fund option for their MPF contributions.

The fund will have a 0.75 per cent fee cap and is likely to offer a less risky, and simpler investment strategy, investing in bond and stocks, with the proportion of stocks reducing as members grow older.

At present, Hong Kong does not have a standard default arrangement and the fund providers decide how to invest, which may see funds subject to high management fees or put into investments that are too risky.

The reform should certainly help solve the problem of those investors who are too busy or do not know how to invest their contributions.

More thought is needed on how to protect employees, and the cash, after they retire

But more thought is needed on how to protect employees, and the cash, after they retire.

Those without any investment experience are simply likely to opt to put their MPF contributions into the default fund options. And when they retire at 65 and get their MPF contribution plus returns, will they then really understand how best to invest that money?

It’s all very well offering options with the fund before retiral, but the regulators should do a lot more to educate investors on what to do with their MPF money.

Providers, too, should be thinking of offering more post-retirement products.

Hong Kong Investment Funds Association chairman Arthur Bacci has already underlined there should be more post-retirement investment solutions, focused on income generation.

With deposit rates close to zero, retirees who bank their MPF contributions will earn little interest.

The MPF products currently available are accumulation products for workers when they are still working. Few of them genuinely address the needs of retirees when they get their money out of the MPF.

White Collar has already been told of numerous examples of retirees putting their MPF money into wealth management products, and then suffering losses.

The government needs to step up its advice, not on the mix of investments of current fund providers, but making sure banks inform retirees of the risks and how to best avoid them.

enoch.yiu@scmp.com

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