There is a misconception which needs to be corrected that Hong Kong’s Mandatory Provident Fund (MPF) scheme is a money-loser, says Philip Tso of consultancy Towers Watson.
Writing in the newly published second edition of MPFexpress.com, the quarterly magazine and website launched by Towers Watson in March, Tso contributes an article to debunk this negative view.
HK equity funds – which account for 36% of MPF investment by asset value, according to the MPF Authority (MPFA) – have achieved a 9.5% net return per annum over the past 10 years after fees, beating the 8.6% of the Hang Seng Index (HSI) over the same period, Tso notes.
Although most professional investors prefer to benchmark MPF against the FTSE MPF HK Index, which covers more stocks than the HSI, again HK equity funds win the 10-year performance race against this index, adds Tso.
Further, he suggests the performance of MPF funds as a whole has also been encouraging, with a 5.5% net return in the decade to the end of 2010 after fees, according to MPFA statistics.
“Over the past year as we prepared to launch MPFexpress.com, a couple of things emerged,” Tso tells AsianInvestor. “One, there is a general complaint that fees are too high, and second, there is this very negative feeling about MPF, that the returns are not attractive to investors.
“But when you look at the figures in detail, we wanted to make a statement that while some funds may not perform well, some funds do perform. Hopefully this brings to investor minds that a HK equity fund in the MPF universe is competitive to Hang Seng.”
Tso points to the introduction of Employee Choice Arrangement (ECA) next year, which will allow members to switch their employee contribution to a preferred service provider once every calendar year, as a welcome move to empower individual savers.
The magazine’s new edition, being handed out this week in an MPFexpress.com branded ice-cream van with free ice-cream (for two hours around lunch-time) and timed to coincide with the launch of its Chinese website, also lists five “piggy banks” that MPF members can draw on in retirement, including the little known special voluntary contributions.
“This refers to an individual who would like to make a voluntary contribution to the MPF system, but not though the monthly payroll deduction,” explains Tso, who points out that members contributed a total of HK$816 million ($105 million) in voluntary contributions in 2010 alone.
“We do encourage people to contribute more, and this is one of the vehicles they can utilise, but I don’t think a lot of people know about this. You can have a relationship with providers directly and the employer has no clue about how much you contribute on an additional basis.”
This edition also details the MPF experiences of five members working in different industries and how they learned to make their investments work, and features a snapshot of the rules of the road for guaranteed funds, of which there are 27 in the MPF market at present.
Tso urges MPF members, especially those without financial literacy, to read the fine print on guaranteed funds carefully as they have different terms and conditions. “You need to understand the requirements before you consider interest and rates of return,” he adds.
The magazine also explains how and why to consolidate MPF accounts, and has a new section called Dim Sum focused on topical themes. In this first instance it considers dim sum bonds, street inflation and a need for the elderly generation to lean on the pensions system rather than rely on their children to provide for retirement.
“The first edition of MPFexpress.com was an introductory issue, while in the second the theme is all about misunderstanding and includes useful information that members can utilise,” says Tso. “The main theme of third edition will be to educate members about how to read investment performance in a proper manner.”
A total of 50,000 copies of MPFexpress.com were printed in its inaugural launch in March and stocks were snapped up in days.
The main print run of its second edition will be handed out at coffee shops, eateries and by MPF providers this Friday (although the ice-cream van is travelling around different districts of Hong Kong this week). All copies are available on www.mpfexpress.com.