Aaron Wong Wai-hung, pension consultant at Watson Wyatt, counts among his long client list well-known companies such as Kowloon Motor Bus, Philips, Cisco Systems, San Miguel, PCCW and American Express. He joined Watson Wyatt as an actuarial student in 1982, when the number of retirement schemes in Hong Kong was growing rapidly. After leaving the company in 1987 to 'gain experience at other firms', Mr Wong rejoined in 1994 and was recently appointed the leader of the consultancy giant's national retirement benefits practice for Greater China. His next target is to help Watson Wyatt gain access to the potentially huge mainland pension market, which is still in the early stages of developing privately run funds. The Informer talked to Mr Wong about China and the Hong Kong pension fund markets. Q. You have handled many big clients such as KMB, PCCW and San Miguel. Do you find they have different demands? A. They are concerned with compliance issues. All these major employers want to make sure they do not breach any laws or regulations with their retirement schemes. They rely on the consultant to help build an effective system to make sure they pay their contributions and file any document on time and accurately. They also want to maintain stability in their pension expenses from year to year, or at least not be subject to nasty surprises. Q. What has been the effect on the pension market since the launch of the Mandatory Provident Fund in 2000? A. Before the MPF, only about one third of the employed population was covered by pension schemes established by their employers on a voluntary basis. Now more than 90 per cent of employees in Hong Kong are covered by a retirement scheme. We now have about HK$40 billion of new money going into the private retirement system every year. Within the next five years MPF assets may overtake those under the pre-MPF regime. Hong Kong retirement schemes have achieved an average return of approximately 10 per cent in the past 20 years since Watson Wyatt started its performance measurement survey. The past three years have been a tough time due to the global stock market downturn. However, we have seen the market bounce back recently to provide a return of about 9 per cent in the first half of this year. Q. What are Watson Wyatt's development plans for the Greater China region? A. Watson Wyatt established an office in Hong Kong in 1973 and has been working in China since the mid-1980s. We established an office in Shanghai in 1995 and now have offices in Beijing and Shenzhen. In Hong Kong, we already have a solid client base as the pension fund market has been developed for a long time. In China, the privately run pension fund market is not yet well developed as many mainland companies still have the old style, pay-as-you-go schemes that provide retired workers their pension benefits out of the company's normal expenses without building up a separate fund. While the day-to-day focus will remain on the Hong Kong market, we believe the emphasis will move north as more state-owned enterprises on the mainland are considering privatisation and many multinational firms in China will also need pension consultancy services. In three to five years' time, we may have more staff in mainland cities than our offices in Hong Kong. Q. What are the difficulties for overseas pension fund providers and fund managers in China? A. There are a lot of restrictions in the China pension market, particularly in investment and foreign exchange controls. In China, pension funds are still mainly invested by local government departments. These funds are not allowed to invest in overseas markets while local stock markets are very volatile. Government bonds and bank deposits only offer very low returns. Q. How can China solve its pension problems? A. Some state-owned enterprises have plans to list their shares so that they can use part of the proceeds to cover their unfunded pension liabilities. The government has encouraged companies to launch an employer-employee contribution pension scheme, which requires the company and staff to pay a combined 24 per cent of the monthly salary of the employee to a pension scheme, which would then invest in different investment funds. This may gradually help solve the pension problems in China. Q. Do you think foreign pension fund managers will soon be able to break into the China market? A. We should see that happen soon. Foreign fund houses such as Invesco, ING and ABN Amro have been allowed to set up Sino-foreign joint-venture fund houses in China. These joint ventures should be able to get involved in some pension fund investment. Q. What advice would you give to pension clients? A. Do not blindly follow the crowd. Each company should design a pension plan according to the needs of the company and the demands of its staff.