Proposed changes to Hong Kong's Mandatory Provident Fund (MPF) scheme sparked debate at a conference this week.
One issue concerned the full portability of assets to different schemes, as proposed by the MPF Authority. This would pose risks, argued panellists at a forum hosted by the Hong Kong Investment Funds Association.
Presently, employees can transfer their own contributions, but not their employer’s, to a fund provider of their choice outside of the schemes chosen by their employer.
MPFA is working on a plan to allow full portability, including employers’ contributions for its members. This will be released next year, said Darren McShane, MPFA’s executive director for regulation and policy.
While panel members supported the move, they pointed to potential pitfalls. For one thing, the move would necessitate an administrative system to allow employers to track their contributions and help them calculate, for instance, severance and long-service payments.
McShane suggested that, instead of building a bespoke system for portability, it might be better to improve MPFA’s whole technological platform.
Another concern over portability is that employers may become less inclined to support employees in their retirement fund planning because employees would have freedom to choose providers, said Philip Tso, Towers Watson’s head of investment for Hong Kong.
The panel also discussed the automated rebalancing of portfolios that would occur under the MPFA plan to introduce a core fund or range of funds.
The proposal is to implement automated portfolio management along the lines of lifecycle or target-date funds, which reduce a member’s exposure to risky assets as they approach retirement age.
The plan to shift towards more passive management has met with disapproval from active fund managers in the past. For example, Eleanor Wan, chief executive at Hong Kong fund house BEA Union Investment, has questioned whether it would be workable.
And during the panel, Elvin Yu, head of institutional business for Greater China and Southeast Asia at Allianz Global Investors, raised a point on this. If a global economic downturn were to occur close to retirement, a member who had moved to a less risky portfolio would likely be less able to claw back losses than one who had retained a greater level of risky assets, he said.
Yu questioned whether the 'glide path' towards retirement should be a smooth, gradual transition to safer assets as opposed to sudden transitions in asset allocation depending on age, for example, and whether the use of derivatives was necessary for downside protection. The design of any core fund would need to pay special attention to the de-risking component, he added.
But McShane argued that the proposed introduction of a core fund would make the MPF scheme less difficult to navigate.
Tso agreed that the introduction of a core fund would help those “who can’t choose, who don’t know what to choose or who don’t want to choose”. It would free members from worrying about asset allocation, he added, and at the same time produce an acceptable risk-adjusted return.