Two thirds of employees are positive on Hong Kong MPF
22 July 2013
News, Hong Kong
By Asia Asset Management
Two-thirds of Hong Kong employees aged 40 or above are satisfied with the performance of their Mandatory Provident Fund, but at the same time do not actively manage their MPF portfolios in terms of savings allocated and time spent, according to 2013 MPF Express Survey by Towers Watson, a leading global professional services consultancy.
For its Survey, Towers Watson interviewed 780 employees across a wide range of industries in Hong Kong. All the respondents were aged 40 or above, with approximately 39% of them aged 50 or over. The survey examined investment strategies across different age groups and their views on MPF as a vehicle for retirement planning.
According to the survey, although 66% of the respondents rated their MPF investment as “good” or “very good”, the majority of them do not make voluntary contributions beyond the mandatory percentage. At the same time, about 69% believe a retirement age of 65 is reasonable, which is significant because an unchanged target retirement age against a backdrop of longer life expectancies means a longer retirement period – and that needs to be adequately funded.
In terms of funding targets, over 40% of the employees surveyed consider HK$5 million to be sufficient for their retirement life, while 20% believe HK$8 million and 18% need HK$10 million or above to be sufficient. However, among those who target HK$5 million for retirement, 90% of them said they rarely – if at all – spend time managing their MPF account.
While MPF investment is widely viewed as a good vehicle for overall retirement planning, 42% of respondents save only 10%-15% of their monthly income for retirement investment, and nearly a quarter (24%) save less than 10%, including the MPF mandatory contributions. Only 9% of respondents make voluntary contributions to the scheme. The reluctance to make such contributions was attributed to poor MPF performance, expensive administration fees and the availability of other investment options.
The survey also ranks MPF savings as one of the top three vehicles for retirement planning. When asked to rank the top three choices for retirement savings, most employees aged 40 or above see bank savings as their primary savings option, followed by stock market investments and then MPF savings. Around 40% of them have more than 40% or more exposure in equities in their MPF portfolio.
“The MPF has received more attention since the Employee Choice Arrangement took effect last year, but the impact of MPF on the first batch of members approaching retirement has been rarely addressed,” says Philip Tso, head of investment, Towers Watson Hong Kong. “Our survey shows that most retirees-to-be are aware of the importance of retirement planning while lacking appropriate actions to fulfill their needs. The importance of MPF in retirement planning and keeping a balanced MPF portfolio should be reinforced in order to help retirees-to-be to enjoy a better retirement.”
Employees’ lack of motivation to establish a long-term and well-planned retirement strategy is an alarming issue, says Mr. Tso. Soon-to-retire MPF members really need to pay extra attention to their MPF investment mix, because they will be drawing from it in the near future, he adds. “We highly recommend MPF members to build on the base, i.e. 5% mandatory contributions, and not to overlook voluntary contributions which are vital to attain a comfortable retirement.”
Mr. Tso notes that MPF savings are overlooked across all age segments, mostly because employees lack the visibility of retirement planning and view the MPF as giving a lower return than other platforms. He adds: “It’s hard to hedge against inflation if you focus on bank savings, while retirement plans heavily invested in stocks would expose soon-to-retire employees to more risks than expected. In view of that, MPF should be one of the key income sources for these people when they retire.”
“The survey results show that most retirees-to-be [those aged 50 or above] are on the right track in their retirement savings mix with bank savings as their top priority. But the same pattern emerges for employees aged below 50 – their approach should be adjusted,” says Mr. Tso. “It is critical for members to decide what to include in their portfolio in different life stages. For instance, to avoid financial market volatility, pre-retirees should change their portfolio mix to a majority of low-risk funds, such as cash funds and bond funds.”
The survey showed that tax benefits, contribution matching systems and provision of more MPF fund choices can encourage members to be more proactive.
To prompt members to be more proactive in managing their MPF accounts, the survey identifies three top initiatives: increased investment variety for MPF planning by employers (25%); further MPF fee deductions (24%); and more tax benefits (23%). Meanwhile, the respondents would consider making voluntary contributions if they find the 5% contribution is inadequate (39%), their employers will match their contributions (24%) or the MPF performance get improved (15%).
Indeed, the survey shows that employers need to do more. While 85% of employees aged over 40 rate their employers’ support as neutral or satisfactory, 70% of interviewees indicate that their employers are irresponsive to their MPF-related enquiries, not offering any updates or providing educational seminars to assist them to manage their MPF.
“The government has been putting effort into educating the public about MPF, but the employers’ role in the MPF scheme should not be ignored,” says Mr. Tso. “As the Relevant Income level is proposed to rise in 2013/14, employees should take a closer look at their current portfolios. Employers should provide more assistance and guidance, such as a formal review of their MPF schemes and investment education, in order to increase employee engagement. As well, employers should encourage employees to proactively select and review funds to meet their life goals and risk appetite, so as to maximise their MPF returns.”
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