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Mandatory Provident Fund (MPF)
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Members of Hong Kong’s Mandatory Provident Fund scheme on average had assets of about HK$251,000 in their MPF accounts as of December 2020. Photo: Sun Yeung

Hong Kong’s pension fund chief promises to initiate reforms as MPF managers urge further easing of investment rules

  • Fund managers want to launch products that can invest in high yielding assets such as Chinese bonds, commodities or sector funds
  • The MPFA in November relaxed rules allowing MPF fund managers to invest in shares of Chinese companies listed in Shanghai and Shenzhen
Ayesha Macpherson Lau, the new chairwoman of the Mandatory Provident Fund Schemes Authority, has said she would keep an open mind while undertaking reforms and will work closely with the investment industry to enhance returns of the HK$1.14 trillion (US$146.8 billion) Mandatory Provident Fund.

Fund managers meanwhile have urged Hong Kong’s pension regulator to further relax restrictions that will allow them to invest in Chinese bonds, commodities and other high yield products to enhance returns of the compulsory retirement plan that covers 4.5 million people.

The MPF has faced incessant criticism for charging high fees, low investment returns and insufficient protection for its members.

“I want to see the MPF provide higher investment returns and further reduce the fees paid by members,” Lau said on Friday in her first media briefing after taking over from David Wong in March. “This is important as Hong Kong has an ageing population while the MPF is the only retirement protection for many workers.”

Ayesha Macpherson Lau, chairwoman of Mandatory Provident Fund Schemes Authority, met the media for the first time on Friday after she took over in March. Photo: Handout

The veteran tax expert will retire from her full-time job as managing partner of accounting firm KPMG Hong Kong in September, allowing her to initiate more reforms at the MPFA.

The MPF requires employers and staff to each contribute the equivalent of 5 per cent of an employee’s monthly salary to the pension fund, capped at a combined HK$3,000. On average, each participant had assets of about HK$251,000 in their MPF accounts as of December, while 100,000 members had more than HK$1 million. This, however, still falls far short of Hong Kong pensioners’ target of HK$3.97 million needed at retirement, according to a survey by Manulife (International), the largest MPF provider in the city, in March last year.

The pension fund has provided an average annual return of 4.8 per cent in the 20 years from its launch until the end of last year. While it has exceeded the 1.8 per cent inflation rate during the same period, it has not been able to match the benchmark Hang Seng Index’s 75 per cent rise during the same period.

After persistent lobbying by MPF fund managers for years, the MPFA last November relaxed rules, allowing them to invest in shares of Chinese companies listed in Shanghai and Shenzhen. While the two were among the world’s top-performing equity markets, rising 13.9 per cent and 38.7 per cent respectively in 2020, they have barely moved this year.

“There should be a holistic review of the regulation governing MPF investments” said Sally Wong, chief executive of Hong Kong Investment Funds Association, which represents the fund management industry. “Fund managers are straitjacketed by very prescriptive rules.”

Currently, the MPFA’s rules restrict investments in high yield bonds, Chinese bonds or commodities. Wong said she wants the MPFA to allow fund managers to invest about 20 to 30 per cent of an MPF fund into these high yield products. The industry also wants rules that would allow them to introduce funds to invest in stocks in a particular sector or theme, Wong added.

Other fund managers want the MPFA to go further and allow them to invest more aggressively, noting that higher MPF returns will help to narrow the pensioners’ retirement needs in their twilight years.

Hong Kong’s Mandatory Provident Fund retirement scheme has 4.5 million members. Photo: Sun Yeung

The MPFA should allow the industry to launch more aggressive investment vehicles as many MPF members are more familiar with investments than 20 years ago, said Kenrick Chung, general manager of employee benefits at Realife Insurance Brokers.

“The MPFA can also launch some indexes to help the public track the MPF funds’ performance. This will add competition for the providers to enhance their investment returns,” Chung said.

The MPFA chairwoman Lau said that the authority will go with an open mind in implementing reforms and will consider various options to enhance fund returns.

“As new investment products emerge from time to time, the MPF’s investment regulations should also evolve with the market developments,” she said.

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