Hong Kong’s Mandatory Provident Fund Schemes Authority (MPFA) must learn from Australia’s superannuation system to engender greater public trust, says the city’s financial services secretary KC Chan.
Speaking at the first Asia-Pacific 2011 Pensions Forum, hosted in Hong Kong last week by The Association of Superannuation Funds of Australia, Chan acknowledged that public views of MPF remain mixed amid concerns over leakage from fees and administrative expenses.
Noting that MPF fund fees had been reduced to an average of 1.82%, he added: “We believe there is still room for further reduction given the increasing scale of MPF assets.”
While the Hong Kong public recognises the need to prepare for post-employment life, he suggested there has been a cultural indifference towards saving in a coordinated retirement scheme ever since the MPF system was introduced in 2000.
He agreed there is a need to address how much people save. “Everyone knows the current monthly contribution capped at HK$1,000 will not be enough to allow the majority of MPF members to enjoy a comfortable retirement,” said Chan. “Only after gaining trust in the system will the public be willing to contribute more.”
He went on to describe Australia’s superannuation scheme, which has accumulated an asset value of A$1.34 trillion ($1.32 trillion), as the envy of many advanced economies.
“The fact the Australian public has been willing to increase contributions from 3% at system inception to 9% today shows the superannuation system must have done an excellent job in earning the trust of the public,” he said. “We have to learn much from the Australian model.”
Stressing the need for the Hong Kong government and MPFA to work together, Chan pointed to a number of initiatives in the pipeline designed to improve the system for members.
The MPFA is planning to commission an independent study to examine the MPF administrative process with the goal of reducing member costs. It is also studying grounds for early withdrawal of funds and is expected to submit proposals to the government.
Plus there is the impending introduction of Employee Choice Arrangement, which seeks to promote market competition by allowing employees to transfer benefits derived from contributions from one scheme to another at least once a year.
Chan noted expectations that portable MPF assets will jump from 39% at present to 67%. “A deal is also being developed to enhance regulation of MPF intermediary activities to introduce a bill in the last quarter of this year,” he added.
So far there have been eight amendments to the MPF Ordinance since 2000, ranging from fees and charges to a streamlining of regulatory requirements and promotion of market competition. “We will make refinements to the system, like we have in the past, to adapt to changes in lifestyle, economy and the changing social environment,” said Chan.
At the same time he highlighted the scheme’s achievements. Over the past decade – featuring the bursting of the IT bubble, the outbreak of Severe Acute Respiratory Syndrome, and the global financial crisis – MPF members have seen an average annualised return of 5.5% net of fees.
“This is a respectable yield compared to international counterparts,” suggested Chan.
He said the accumulated net asset value of all MPF schemes, or total contributions in the MPF system after deducting benefits paid, stands at HK$280 billion ($36 billion), with 66% in equities, 22% in debt securities and 12% in deposits and cash.
There are 19 approved MPF trustees and 41 MPF schemes as at the end of the first half of this year.
As of the first quarter, Hong Kong had an employed population of about 3.6 million, of whom 71% were covered under the MPF system. Contributions received in the second quarter totalled HK$10.2 billion.