Hong Kong’s ORSO DC schemes weak on member engagement

20 February 2014   Category: News, Asia, Hong Kong   By Asia Asset Management

The majority of larger Hong Kong Occupational Retirement Schemes Ordinance (ORSO) defined contribution (DC) retirement schemes tend to offer typical or as wide a range as possible with regards to investment choices, but seldom engage in any research to understand their membership’s profile and engagement levels, according to the latest survey findings released by Towers Watson.

The survey reveals that more than half of the respondents provide six-to-ten investment fund choices to members, while 60% of respondents expect the number of options to increase in the next three years. However, most respondents have a general sense of the needs of some member segments or a typical member, but nothing beyond that.

As revealed by the survey results, scheme sponsors mainly rely on member representatives on pension or investment committees to provide input on the DC retirement scheme arrangement. Only a few respondents sought input from their members based on a research study such as focus groups or member surveys.

Janet Li, senior investment consultant at Towers Watson in Hong Kong, said: “Member choice arrangements are about offering the right choices, rather than, more choices or just the typical choices. When members are unable to choose their own investment strategy, offering more choices may confuse them, if not accompanied by effective and clear communication and education. Examining the groupings, needs and level of engagement of their members can help with what and how much scheme sponsors can do for their members, provided sponsors have sufficient resources.”

In terms of the investment strategy, half of the respondents provide a default option to members who are unwilling or unable to choose their own investment strategy. The majority of those retirement schemes that have a default option adopt a static strategy such as traditional multi-asset funds.

Ms. Li continued: “There is no single default strategy that fits all DC retirement schemes. Towers Watson believes the key point for sponsors is to understand their schemes’ member segmentation in order to construct a fit-for-purpose default structure. In addition to offering a static strategy to all members, sponsors may also consider offering a strategy that varies according to a member’s age, for instance, the equity content decreases as a member get closer to retirement.”

The survey asked employers or sponsors of ORSO retirement schemes about their DC arrangements in the governance context. The aggregate retirement scheme asset size of all respondents was HK$76 billion (US$9.8 billion), representing around half of the MPF-exempted ORSO DC assets in Hong Kong as of September 30, 2013.