A study by a leading consultancy shows that employees will choose higher growth investment options to ensure they have a bigger pension when they retire. Under the MPF, employers will decide which insurance firms or fund managers will administer their company's scheme. However, it will be up to individual employees to choose the investment option for their MPF contributions. Sean Henaghan, assistant director of leading pension consultant company Watson Wyatt, said it was expected the scheme provider would usually offer the employee four options. These would include a Capital Preservation Product, capital stable fund, balanced fund and growth fund. According to the MPF ordinance, all service providers have to offer the Capital Preservation Product, which bans service providers from collecting any fee from the employee if the investment return of the product is lower than the savings rate of domestic banks. This investment option aims at ensuring the low income earner's contribution will not be eroded by administration fees. The Capital Preservation Product has a restricted investment requirement which means it can only invest in government bonds, high credit rating corporate bonds and bank deposits. Mr Henaghan said although the Capital Preservation Product was enforced by the law that all services providers must offer it, it did not mean it was suitable for contributors of all ages. 'According to our study, the Capital Preservation Product will have a return similar to the money market fund which will only have a return three per cent lower than the rate of inflation rate,' he said. 'If the employee put his MPF contribution in the capital preservation product for 45 years, his pension will only be equal to 29.4 times his final salary,' he said. 'This is much lower than the growth fund which will provide a return of 148.1 times of the last monthly salary for 45 years. 'I believe the Capital Preservation Product will only suit older people who are going to retire in the near future and cannot bear too much risk.' Mr Henaghan said younger employees should go for the growth fund which, although it carried the highest risk among all MPF investment options, would achieve the highest return. The growth fund investment options would have 85 to 100 per cent of the fund assets invested in equities. 'This investment option has a percentage of investment in equities which will face the market risk. However, if you are putting your fund in the stock market for 30 to 40 years, the long-term growth will definitely beat the short-term volatilities of the market,' he said. 'Our study showed that the growth fund return is four per cent higher than the inflation rate. 'This is the investment option that will help the employee beat inflation.' Those willing to take a medium level of risk should opt for the balanced fund or the capital stable fund. The balanced fund has 50 to 90 per cent of its assets in equities with the rest in the bond market. The capital stable fund has 20 to 50 per cent in equities with the rest in bonds. The capital stable fund can just beat inflation, while the balanced fund can achieve a return two per cent higher than inflation. If the employee put his MPF contribution in the capital stable fund for 45 years, he could get a lump sum pension of 54 times his last monthly salary. For the same period, the balanced fund return would be equal to 87.1 per cent of the last month's salary. 'How much you can get from your MPF contribution will depend on which investment option you choose. It is important for the employee to decide on the correct option,' Mr Henaghan said. 'If you choose to put your money into the most conservative Capital Preservation Product, you may get just a little return when you retire. 'For those who are in their 20s or 40s, I suggest they choose the growth fund to get the highest return.' However, he believes employees will tend to choose the conservative investment option when the MPF is first launched. Mr Henaghan said: 'It will need some time for the employee to feel comfortable to choose the higher growth product.' He urged employees not to switch their investment too frequently. Mr Henaghan said although the MPF scheme allowed employees to switch their investment options whenever they liked, it was unwise to do so too often. Those who did may need to pay fees for such switches.