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Annette Chiu

EMPLOYEES SHOULD increase Mandatory Provident Fund contributions by making voluntary transfers to guarantee better protection for their retirement, MPF service providers suggest.

The mandatory contribution was only a small percentage of savings which may not be enough to sustain the existing living standard of employees after their retirement, HSBC Life (International) sales and client services head Luzia Hung said.

According to MPF rules, employees who earn more than HK$4,000 per month are required to contribute 5 per cent of their salary to the MPF, while their employers contribute the same amount.

An HSBC case study found a 20-year-old employee who earned HK$15,000 per month could accumulate just HK$771,429 at current values by the age of 65 if he stuck to the mandatory contribution only.

If he lived until the age of 80, he would have just HK$4,300 per month for the 15 years of retired life.

Ms Hung said: 'There will be a great change in his living standard after his retirement if he sticks to the mandatory contribution.

'He may want to consider making an extra contribution.'

If that same employee made an additional contribution of 9.5 per cent, about HK$1,417, he would accumulate almost double the amount, HK$1.5 million, by the time he retired at 65, representing an average income of HK$8,300 per month until 80.

Dao Heng Fund Management director and general manager George Chan Wing-yau also suggested employees make extra contributions.

'The mandatory contribution is not enough. Some people may start their MPF scheme in their 30s or 40s, the mandatory contribution may not be able to guarantee their living after retirement,' Mr Chan said.

However, people have held back on voluntary contributions because of adverse economic conditions. Some do not have the money to make extra contributions while others have lost confidence in MPF as an investment vehicle.

'MPF funds have been losing money since they were launched. It deters people from making voluntary contributions as they prefer to put the money in the bank,' Mr Chan said.

'If the market recovers, they'll accept MPF as a long-term investment and they may be more willing to make voluntary contribution.'

Mr Chan said it would take at least three years to evaluate the performance of the funds as retirement investment vehicles, and the focus should be on long-term prospects.

Doris Shu, director of marketing and public relations at Principal Insurance, advised employees not to pay excessive attention to the short-term performance of MPF funds.

'There will be short-term fluctuations in the market but they shouldn't affect your perspective on the fund,' Ms Shu said.

She said Hong Kong people were familiar with personal investment but most of them held a short-term view on their pension plans.

However, investing in MPF funds had an equalling effect as it was based on the principle of 'dollar-cost averaging'.

When the market was performing well, there would be better returns on the fund but the MPF fund could only buy a small number of units as a result. However, if the market went down, more units could be purchased with the same amount of contribution. If the market revived again, investors could have a better return.

Ms Shu said employees should evaluate their own needs when deciding on which plan they should go for, including their age, family responsibilities and the risk factor.

Once they were set with the plan, they should only evaluate the portfolio on a long-term basis to see whether the fund was still suitable for their retirement objective.

'There should not be a frequent switch of funds,' she said.

However, employees may have to consider switching funds when they change jobs, as different employers may use different MPF providers.

Ms Shu said employees should carefully handle their old MPF accounts or they would end up investing in various directions.

Ms Hung said there were three options in dealing with old MPF accounts. The first was to leave the old account to the former service provider. Then, the old account, without new money coming in, would become a preserved account in which the old service provider would continue to handle the money.

The second option was to transfer the money in the old account to the service provider of the new company.

In the third option, the employee chooses a service provider and opens a preserved account, while contributing to the account which is run by the service provider of the new company.

Ms Shu said option one was not advisable as employees would find it hard to manage several accounts.

'Employees should consolidate their MPF accounts. Managing the investment in a single account may bring a better return because the investment base is bigger,' she said.



Extra MPF contributions encouraged