Mandatory Provident Fund only part of retirement savings framework

PUBLISHED : Tuesday, 09 June, 2015, 4:59pm
UPDATED : Tuesday, 09 June, 2015, 4:59pm

I refer to the letter by Simon Datta ("MPF does not offer security in old age", June 1).

Mr Datta raises important points about the extent to which the MPF system can provide retirement protection and is concerned about the possibility of MPF members losing all their savings "by a stroke of ill-luck for an investment gone wrong".

The MPF system is founded on mandatory contributions that are invested into financial markets through private, not public, administrators and investment managers.

This approach is consistent with the recommendations of the World Bank and is the same model that has been adopted by around 30 other jurisdictions since the time Hong Kong decided to proceed in this direction.

Mr Datta is correct that this does expose members to investment risk, but without such exposure there is no real scope to generate a meaningful level of returns over the long run. For members who are uncomfortable with investment risk, there are very low-risk investment fund options available in every scheme.

However the obvious downside for members who choose such funds is that they are limiting the scope for higher returns over the long run. Mr Datta should take comfort from the fact that the law puts in place some limits on how investment managers can invest contributions so as to reduce the scope for extremely bad outcomes.

The heart of Mr Datta's concerns appears to be that the MPF system will not be able to provide adequate retirement protection. This concern is perfectly legitimate.

A combination of unknowns around the time in the workforce and investment returns means that no one can say that the MPF system will provide retirement security for any particular individual.

This is why the MPF system has to be seen as only one pillar in a diversified, multi-pillar framework, for retirement savings adequacy. Other types of private savings, family support and various types of government support all have essential roles to play in different ways for different individuals.

The Mandatory Provident Fund Schemes Authority will continue to regulate the system and vigilantly supervise service providers to ensure that the MPF system can play its important part in the overall retirement savings framework for Hong Kong people.

Darren McShane, chief regulation and policy officer,Mandatory Provident Fund Schemes Authority