Hong Kong pensioners can now take out MPF savings by monthly instalments

PUBLISHED : Tuesday, 19 January, 2016, 7:06pm
UPDATED : Tuesday, 19 January, 2016, 7:06pm

The employees who retire from next month onwards will be allowed to withdraw their Mandatory Provident Fund (MPF) by instalments instead of a one-off lump sum, giving savers more flexibility with their retirement funds.

“With the new rule in place, employees can now choose to take only some of their MPF when they retire at 65. They can decide if they like to keep their MPF contribution in the portfolio and take the money out when the market stabilises,” said Cheng Yan-chee, executive director of Mandatory Provident Fund Schemes Authority, in an annual media gathering.

Cheng said it would be hard to predict how many employees would like to take out their savings by instalments.

“Some retired employees might want to take all their MPF out now as they may worry the market may continue to fall. But I believe the new rule would give employees a choice of whether to take their money in one go or just a part of it,” he said.

READ MORE: Let’s employ a little creativity in Hong Kong pension reform

The new rule, which takes effect on February 1, comes at a time of unusual market volatility.

About HK$4 billion to HK$5 billion are withdrawn from the MPF every year by members on reaching retirement age. Once the new rule sets in, the drawdown may fall off.

The government in recent years has carried out several reforms to improve the MPF, which has faced criticism for poor investment performance, high fees and complicated administrative process.

The average MPF fee is 1.64 per cent compared with 1.21 per cent in Australia and 0.83 per cent in the United States.

Retirement funds on average lost 2.95 per cent last year, the worst performance since losing 8.57 per cent in 2011, when the stock and bond markets were hit by the euro-zone debt crisis. They, however, still outperformed Hong Kong’s benchmark Hang Seng Index, which lost 7.3 per cent last year.

The MPF has had good years, too. It rose 1.55 per cent in 2014, 8 per cent in 2013 and 12.18 per cent in 2012.

“The flexible withdrawal of the MPF would be the first of a batch of reforms to improve the MPF,” Cheng said.

It will be followed by the core fund reform, which, if approved by lawmakers this year, would require all 15 MPF providers to introduce a default fund capping the management fee at 0.75 per cent for employees who do not choose their MPF investment strategy.

The third reform would be a study to be carried out this year on how to simplify the MPF administrative process to cut costs and procedures, he said.

The authority will also combine its three offices in Kwai Hing in March, saving HK$50 million in rent every year, Cheng said.

The authority currently has three office in Central, the International Commerce Centre in Kowloon and one in New Territories.

“By consolidating the three offices into one, we will need 10,000 square feet less space than before. The total savings would be about HK$50 million a year. All our staff will also be able to work together in a single office, saving time and money for travel,” he said.