Hong Kong's savings fund for old age should not be left to market whims

PUBLISHED : Friday, 01 May, 2015, 9:20am
UPDATED : Friday, 01 May, 2015, 9:20am

I refer to the letter from Betty Chan of the Mandatory Provident Fund Schemes Authority ("MPF returns higher than inflation rate", April 20), responding to an earlier letter by Winky Chan ("MPF failing to offer security in old age", April 14).

Ms Chan advises that MPF assets have grown to a total of HK$590 billion as at the end of February, generating an investment return of HK$150 billion. This works out to an annualised internal rate of return of 4.4 per cent over its period of operation, since inception over a decade ago. She adds, however, that "system-wide performance is largely driven by the investment choices that members make".

I suggest that this is a fundamental weakness of the MPF scheme, in that members have to make long-term investment choices when few of us are knowledgeable enough to do so.

In my case, I followed the recommendations issued from time to time by my MPF managers and when I cashed in on reaching 65 in 2011, I received a total return of 0.6 per cent (I'd been in the MPF scheme since inception). In other words, with inflation, I lost heavily. I'm sure I was not alone.

Whilst I accept that members cannot rely on the MPF scheme as their sole means of support in their old age, it is not good enough to have a scheme that is basically blind gambling, with hit or miss returns dependent on the state of the bond and stock markets at the time of retirement. I pity those who retired in late 2008.

Whilst Ms Chan crows about the current investment return since inception, possibly she can give us the comparable figure for management fees and the annualised percentage?

On a related theme, let's hope the government's voluntary health insurance scheme (if it ever gets off the ground) is not going to result in another windfall for the finance and insurance industry. However, given the government's ineptitude with regard to the MPF, I'm not holding my breath.

Doug Miller, Tai Po