You won’t get rich from your MPF fund, but your bankers certainly will

Most people would do better for their retirement by keeping the money they pay to the fund for investment in their own enterprises and opportunities

PUBLISHED : Sunday, 16 October, 2016, 2:30am
UPDATED : Sunday, 16 October, 2016, 2:55am

Employees need to understand they cannot rely on high investment income for their retirement. The contribution of the MPF is too low to provide what they need for their retirement. They need to contribute about 15 per cent of their monthly salary to their pension scheme to meet the gap.

Chris Durack,

Schroders HK

Business, October 14

 

Let’s put some things into perspective here with a simple chart. The bottom blue line shows you the accumulated net contributions to the Mandatory Provident Fund since September 2004.

By accumulated net contributions I mean the accumulated value over time of contributions received from conscripts (the MPF people like to call them members but I think my choice of words is better), less benefits paid out to them.

I would have liked to take it back all the way to the inception of the MPF in December 2000 but, unfortunately, the MPF people have not seen fit to disclose the earlier numbers. Yes, I wonder whether this has to with an embarrassingly poor performance over those four years but let’s be kind.

Thus we start with September 2004 when the total net asset value of MPF funds was HK$107.7 billion. In order to put things on an equal basis, I have assumed for purposes of the chart that the accumulated net contributions as of that date also stood at HK$107.7 billion.

How then does the overall fund performance (net asset value) since that time stack up against the total amount of money available for investment?

As the chart shows, total net asset value is now about HK$607 billion while the accumulated net contribution since September 2004 stands at HK$490.5 billion. The difference is the overall record of what the MPF gained for you over what you would have had if you had just kept the money in cash. It’s not much. In fact an annual 3 per cent return on the accumulated net contribution would have outperformed the MPF.

Given that total returns (capital gains plus re-invested dividends) on the Hang Seng Index over that period were up 168 per cent and that you would not have done much worse in the US market, it’s a surprise that the MPF could not do better when 65 per cent of its investments are in equities.

The fact is that fund managers pulled the wool over the government’s eyes back in the late 1990s and structured the MPF to enrich themselves long before enriching you. You cannot fire them or change them. They are appointed by your employer in a cumbrous structure that saddles you with an additional, different pension fund every time you change jobs.

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They don’t have to compete or sell their services to you. They just collect the money from you every month, tell their clerks “Buy some more Bank,” and then forget you except to rejoice that they can charge you management fees of many times the going rate for this non-service. No, Mr Durack, you have it wrong. Even 5 per cent of a monthly wage is a very big slice of any working adult’s disposable income after unavoidable living costs. Most people would do much better for their retirement by keeping that money for investment in their own enterprises and opportunities. But 15 per cent would be an outrageous exaction.

The MPF has been given a fair 16-year run to prove itself, but has proved only that it is a money spinner for the investment management trade.