MPF good step ahead for people of the SAR
Following 30 years of debate on how to combat the growing problem of providing financial security for the ageing population, the Hong Kong Government has forged ahead with developing the Mandatory Provident Fund (MPF) scheme.
With only 29 per cent of Hong Kong's three million employees covered by retirement plans, Fidelity Investments, one of the largest pension providers in the world, expects to face a highly competitive market divided between a number of major players.
'We think the MPF legislation is an extremely good step forward for Hong Kong and its people.
'The companies who get in to it [the MPF market] will be looking at it as a long-term business. It will take people a long time before they break even,' Brett Goodin, Fidelity's managing director (Asia-Pacific and Australasia), said.
'The market will narrow because of the size of the customer base and the bells and whistles the Provisional Legislative Council is looking at having with this product.
'It is not going to be a standard member-choice product; it is going to be relatively sophisticated.' Fidelity, which provides a 'cradle-to-grave-service' with a portfolio of 50 mutual funds to choose from - ranging from the most high- risk high-growth equity funds to the most conservative triple A-rated money funds - is confident it will meet most customer investment needs.
The challenge for the fund management company, as seen by Mr Goodin, is getting the right funds to the right customers at the right price.
'One of the things which would allow the market to open up would be if the investment guidelines for the funds were less restricted.
'At this stage, the industry pretty much expects, from the noises which have been made by the MPF officials, that we are all going to have to create brand new funds which will have very specific investment guidelines,' he said.
'This means we can't use any existing products, which means we can't pass on economies of scale to the pensioners and it is going to be an expensive business for us to run and also for the investors to pay for.' Mr Goodin hopes the Government's final decision will make things easier for providers of the funds and promote growth in the market.
'I think MPF is a terrific policy. What the MPF authorities and the Provisional Legislative Council have done is visionary work,' he said.
'They are really thinking ahead, 30 to 40 years ahead.
'I think it would be easier for people to provide better and lower cost services if they [the Government] were more flexible on the investment restrictions.
'The real trick is to bring in the relatively small companies, for example, those with less than 20 employees.
'Getting everybody involved will be a major challenge for the authorities.
'I think that, in itself, argues in favour of trying to make low-cost products.'