Industry warns of high cost to members of capital preservation product

The Government is to consider changes to key aspects of the Mandatory Provident Fund following protests from the financial services industry at a Provisional Legislative Council meeting yesterday.

Representatives from the fund management, life insurance, trustee and retirement schemes industry warned the Government against the proposed capital preservation product (CPP).

They said nine in 10 scheme members were likely to choose the product because of the perceived Government endorsement that it would preserve their scheme contributions.

The representatives warned deposit-style accounts for long-term savings, such as pensions, offer little protection against a high inflation rate.

The Hong Kong Investment Funds Association, said: 'It must be emphasised that the opportunity cost to scheme members of using CPP for retirement protection purposes is extremely high.

'From a sound financial planning perspective CPP is only suitable for those who are close to retirement age.' Hong Kong Retirement Scheme Association vice-chairman Stuart Leckie said: 'Retirement schemes are designed to match or beat inflation. There is no way [CPP] has any chance to match salary inflation in the long run.' Life Insurance Council member Greg Willis said the industry had 'grave concerns' about the proposal.

'We feel it is not a good investment choice for MPF investors,' he said.