Digitalising Hong Kong’s retirement scheme

Hong Kong began streamlining operations and improving the efficiency of the Mandatory Provident Fund (MPF), the city’s HK$1.3 trillion (US$167 billion) public retirement saving scheme, with the launch of the digital centralised eMPF platform in June 2024.

The platform is now being implemented via a phasal transfer of the 12 MPF trustees’ employer and member accounts. The whole procedure is scheduled to be completed by end-2025.

In an interview with Asia Asset Management, Cheng Yan-chee, managing director of the Mandatory Provident Fund Schemes Authority (MPFA), gives an overview on the progress of the transfer, the cost benefits brought by the eMPF platform, as well as the diversification of the MPF investment scope.

What’s the progress of the account migration from MPF trustees to the eMPF Platform? When will its cost reduction advantage fully come into play?

Six MPF schemes, representing about 3% of the total assets under management of the MPF System, involving approximately 11,000 employer accounts and more than 460,000 scheme member accounts, have onboarded the eMPF Platform since its launch on June 26, 2024.

Of nearly 220,000 transactions processed via the eMPF in the initial phase of the operation, instructions for two-thirds of them were submitted electronically, including contributions, MPF withdrawals, transfer of MPF benefits and change of investment mandate. In particular, the digital usage rate for submission of contribution data and change of investment was 80%, indicating that the initial phase of digital transformation, driven by the eMPF, is encouraging.

The eMPF operates on a non-profit basis. The average administration fee of MPF funds is expected to reduce by 36% in the first two years. A cumulative cost saving of HK$30 billion to HK$40 billion is expected over a ten-year period, equivalent to a 41% to 55% reduction in administration fees.

Among all 379 MPF funds, 237 of them (accounting for 85% of total MPF asset value) are currently charging an administration fee higher than that of the eMPF. After the relevant schemes get onboard the eMPF, the administration fees of their funds will be reduced by up to 57%. The figure above only reflects the first two years of operation. Over time, the cost-effectiveness of the eMPF will increase, leading to further reductions in the fees charged by the eMPF. It is expected that the great majority of MPF funds will further reduce their administration fees within two years.

What have been some of the teething problems encountered by eMPF users in the early stage?

As a one-stop platform handling the administration of all MPF schemes, the eMPF is a massive system, with very limited experience to draw upon for its implementation. It is therefore inevitable for the platform to encounter teething problems during the early stage of its operation.

Since the launch of the eMPF in June 2024, the eMPF Platform Company has been aware of several incidents where employers and scheme members have encountered difficulties in adapting to the eMPF, including difficulties experienced during registration using facial recognition technology, unclear payment instructions causing multiple payments being made for those using direct debit, and recognition of non-standard arrangements for voluntary contributions.

The eMPF Platform Company attaches great importance to users’ feedback and has therefore required the contractor to implement a series of enhanced measures to facilitate the transition of scheme members and employers to the eMPF and improve user experience. These include:

• Strengthening of manpower resources: Within this year to gradually increase the manpower of the contractor by over 100% to enhance the operational efficiency and quality of the eMPF
• Prompt resolution of operational issues: Conducting comprehensive root cause analysis and impact assessment once new issues are identified to avoid escalation of recurrence of these issues
• Enhancement of case handling mechanisms: To expedite responses and strengthen user support by assigning dedicated case managers to handle each and every complaint
• Increased clarity of the user interface: To improve the clarity of notifications and messages to facilitate users’ submission of administrative instructions and minimise errors
• Stepped-up trial use and user training: Scaling up and increasing the number of workshops/training sessions to scheme members, employers and MPF intermediaries to ensure thorough familiarisation with the eMPF’s functionalities and operations prior to onboarding.
• Direct support to eMPF users: Arranging more outreach services to provide one-on-one, hand-holding on-site support to employers when registering and using the eMPF.
• Independent auditor’s assessment of system and operational controls of eMPF: Engaging an independent auditor to assess system and operational controls of the eMPF and drive the contractor to further its efforts in improving the controls based on the recommendations of the auditor.
• Security risk assessment and audit (SRAA): An independent auditor will perform an annual SRAA. The eMPF Company will continue to drive the contractor to review and align the security measures based on technology evolvements and recommendations of the SRAA auditor.
• Trustee Working Group: Convening regular meetings with representatives from onboarded trustees and the contractor to review the ongoing operations of the eMPF, to identify service improvement opportunities, plan for digital uptake strategies and review future system enhancements.

Please talk about the diversification of the MPF investment scope. What progress has been made on the inclusion of real estate investment trusts (REITs) in the scheme?

To enable MPF trustees and the fund industry to provide better and more diversified investment options for the working population to strive for better investment returns and diversification of risks, the MPFA continually reviews and refines the regulation of MPF investments with a view to further expanding the scope of permissible asset classes.

In view of the role of listed REITs in diversifying investments and providing stable income, the MPFA completed a review last year and made plans to allow MPF investments in REITs listed on the Shenzhen Stock Exchange and Shanghai Stock Exchange. We also lifted the investment limits for REITs listed on approved exchanges in Singapore, Japan, Canada, France and the Netherlands. Once the detailed arrangements and schedule for the inclusion of REITs in the Shenzhen/ Shanghai Hong Kong Stock Connect are confirmed, the MPFA will move quickly to implement this facility.

Some overseas pension funds have included digital assets for their members. Will the MPFA consider including such assets?

The MPFA reviews and refines the regulatory framework for MPF permissible asset classes on an ongoing basis, with a view to providing better investment returns and diversification of risks to scheme members. When considering whether a new asset class should become permissible, the MPFA seeks to strike a balance between flexibility in pursuit of investment performance and safeguarding against avoidable risks such as liquidity, valuation, credit and concentration risks.

Given the complex nature and significant risks cryptocurrencies can pose to an MPF fund, it remains MPFA’s policy that MPF funds should not invest in cryptocurrencies, whether directly or indirectly through any other investment products or arrangements, so as to ensure scheme members’ interests are protected.

What are the implications of the increase in the tax-deductible voluntary contribution (TVC)?

The MPF is a long-term investment and the TVC will add value to retirement reserves. Together with the MPF derived from mandatory contributions, TVC will further enhance retirement protection.

TVC has been well received by scheme members because it can further enhance their retirement protection while providing them with tax deductions. As of December 2024, the number of TVC accounts totalled 80,000, which is three times higher than five years ago. The cumulative contributions received exceeded HK$11 billion.

We are glad to see the increase in TVC as more scheme members attach importance to planning for retirement protection. The MPFA has been committed over the years to educating scheme members on the importance of early planning of retirement protection. We have seen more and more scheme members adopting a more proactive and informed approach to securing financial stability in retirement and becoming more aware of the need to make additional savings to achieve their retirement protection goals.