Date: 21st March 2017

Venue: Conference Room, 35th Floor, Central Plaza, Wanchai

On 21st March 2017, HKRSA hosted a Seminar on the MPF & Retirement Protection System in Hong Kong. Darren McShane, Chief Regulation & Policy Officer and Executive Director, MPFA gave a personal view. He officially leaves the MPFA on 24th March 2017 after 15 years, so this was a farewell presentation from him, followed by a panel discussion.

Some key takeaways from the seminar were that in the view of Darren, most of the aspects of the system ticked key boxes in the possible parameters being; compliance with the World Bank multi-pillar model coverage, contributions, sustainability, supervision and Governance and outcomes, satisfaction and buy-in, with  MPF fitting within Pillar 2 of the multi-pillar model.

  • On coverage of Private Pension Schemes of employed persons, Hong Kong is very high by international standards at 85%, second only to Australia at 91%.
  • The Mandatory Contribution Rate of 10% is comparable to and in many cases above other mandatory systems.
  • MPFA date shows that there is an increasing trend of voluntary contributions, as a percentage of total contributions, from 10% in 2005 to 23% in 2016.
  • On a pension sustainability index for Asia with a Scale from 1 – 10 where a jurisdiction with an overall score of 1 represents the greatest need for reform and 10 represents the least need for reform, Hong Kong rates number 7, the highest amongst the select group. Globally, Hong Kong is one of the most sustainable, ranked number 14 (Australia being No 1).
  • With GDP, Hong Kong is very high among non-OECD jurisdictions, with pension fund assets being 25% of GDP as at the end of 2015, with MPF thus gaining increasing importance in the economy.
  • On the International Organisation of Pension Supervisors (“IOPS”) Principles of Private Pension Supervision (“Principles”), all of the Principles have been implemented and MPFA meets the international standards of Supervision and Governance.

With regard to the outcomes, satisfaction and buy-in, Darren believes that the system is too young to properly assess such outcomes – a 40 year working life is required, but investment returns to date have been on the disappointing side, with clear challenges on satisfaction and buy-in. He also queries the extent of media/commentator driven dissatisfaction.

On four broad themes of change, there have been considerable changes or enhancements over the years since commencement in 2000, these being:

  1. Enhancing & Protecting Members’ Rights
  2. Reducing Fees & Costs
  3. Addressing Adequacy
  4. Improving Investment Rules

A topical matter is of course Severance Payments (SP) / Long Service Payments (LSP) Offsetting. In the 2017 Policy Address, the Government is to progressively abolish offsetting of SP or LSP with MPF contributions with three key elements; (1) no retrospective effect (2) adjust SP/LSP payable for post-implementation employment period from “2/3 of wages” to “1/2 of wages” and (3) Government subsidy in the 10 years after implementation. The Government is consulting stakeholders, including MPF trustees and target to take the proposals to the Executive Council by end-Jun 2017.

With the issue of full portability, the Government expects abolition of offsetting to remove an impediment to “full portability”. eMPF would pave the way for full portability in the medium term, increase portable MPF assets from 70% under ECA at present to approximately 91% and employees will have full control over investment strategy.

Another key initiative is that the MPFA is discussing with industry the MPFA’s objective after DIS to put in place eMPF in the medium term. This will entail electronic infrastructure and processes to standardize, streamline and automate MPF scheme administration. The goal is to make good use of technology, improve efficiency, lower costs, give scheme members a one-stop access and employers convenient facilities for making contributions. The Government will set up a working group with MPFA and the industry to explore viable solutions.

A further initiative is that the Government will arrange a feasibility study of a public annuity scheme, to help the elderly turn their assets into a stable monthly retirement income. The Hong Kong Mortgage Corporation has commenced a design and feasibility study proposal and the MPFA will review withdrawal of MPF benefits in the light of this and other developments.

The next min/max Relevant Income (RI) Levels will be reviewed in July 2018.

On the matter of MPF Investment Regulation, Darren acknowledged that there has been a constant call from the industry for more flexibility in order to achieve better performance and said that there is scope for discussion, particularly on access to less liquid assets.

A key factor is the need to increase the total contribution rate gradually to a target of at least 15% in the long term, which would enhance retirement protection for the working population. Another aspect from the 2017 Policy Address is the Government’s ultimate vision for the MPF System, where each employee pools all MPF benefits into single account and this provide more effective management of retirement savings.

In summary, Darren believes that the MPF system does well on most objective measures and is well regarded internationally. It meets the World Bank parameters for helping address (not solve) old age poverty. However, it does need ongoing refinement and the challenge of ongoing dissatisfaction from commentators, politicians and the public. The message though is that it does tick the boxes (or at least most) and that Hong Kong was lucky to get MPF through when it did, as if it was introduced more recently it could well be problematic.

The presentation was followed by a panel discussion on the Pros and Cons of MPF and the retirement protection system in Hong Kong, which was moderated by Elvin Tharm, Head of Business Development and Client Relationship, Wealth Business, Mercer, with the following panel members;  Art Bacci, Chairman, Hong Kong Investment Funds Association; Candy Yuen, Chairperson of Retirement Schemes Working Group, The Hong Kong Federation of Insurers; Chris Tse, Vice Chairman, The Institute of Financial Planners of Hong Kong, Loretta Lam, Co-chair, Pensions & Funds Subcommittee, Hong Kong Trustees’ Association Kong Trustees Association and Darren McShane.

There was a general discussion on the commonly held view that MPF is not sufficient for a comfortable retirement due to low contributions, high fees and low investment performance, etc.

Also, whether MPF / ORSO a good vehicle for voluntary savings – which with the steady increase mentioned in Darren’s presentation, suggested the answer is yes.

There was also general consensus that the MPF system could be better.

Overall, the seminar met the objective and the ratings post event suggested that there was satisfaction from the audience.

Apart from the speakers and bodies they represent, thanks go to the following:

 

Event Sponsors:

  • Fidelity
  • HSBC
  • Investec
  • Mercer

Last but by no means least, thanks go to Darren McShane and we wish him a pleasant and prosperous future.

Note:

  • You can download the slides from the following link Presentation slides
  • Reference to data and statistics in this article are also available from the slides
  • You can view photos of the event from the following:

Part 1:

Part 2:

 

 

Isabella Ho

Isabella Ho has blogged 80 posts