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Wednesday, January 27, 2016, 08:37

MPF sees 3.1% yearly return rate

By Oswald Chan in Hong Kong

The Mandatory Provident Fund (MPF) program has achieved an annualized investment return of 3.1 percent since its launch 15 years ago, beating the average yearly 1.8-percent inflation rate over the same period, according to the Mandatory Provident Fund Schemes Authority (MPFA).

Started on Dec 1, 2000, the MPF program accumulated total assets of nearly HK$590 billion in the 15 years to November 30 last year. The sum included HK$475 billion in MPF contributions and HK$114 billion in investment returns net from fees and charges. The average amount of MPF assets per contributor was HK$143,000.

Within the six main categories of fund types, equity funds yielded the highest annualized return of 4.1 percent, higher than the average 3.1 percent, compared to the 0.6-percent annualized return from money market funds during the 15-year period.

However, between April 1 and Nov 30 last year, the MPF lost 5.9 percent, MPFA figures show.

MPF advisory firm Gain Miles had previously reported that each MPF contributor lost an average of HK$6,248 in 2015, translating into a negative 3-percent return rate, due to the continued volatility in Hong Kong’s equity market.

“The MPF return is driven by the collective investment choices of all members and reflects the results of their investments across many different asset classes and regions,” MPFA Chairman David Wong Yau-kar said on Tuesday.

He regarded the MPF as a key pillar in the city’s retirement protection system as it has added value to members’ retirement savings.

“Retirement protection involves different pillars and each pillar is very important. The current MPF asset level reflects the importance of engaging personal savings in the local retirement protection system,” he said.

“Only after around 40 years can we see more comprehensively the benefits that such a system can produce,” Wong said, adding that the MPF asset level can swell to more than HK$1 trillion when the program marks its 40th anniversary.

He also envisaged the launch of a default investment strategy (DIS) will provide cheap fund choices and fasten market competition that would drive MPF fees lower. The MPF fund expense ratio of MPF as of Nov 30 last year stood at 1.6 percent — a historical low since the MPFA began compiling fee records — and 0.49 percentage point lower than in 2007.

The Mandatory Provident Fund Schemes (Amendment) Bill 2015 was gazetted in mid-November last year to make the MPF fund market more competitive by launching the DIS, which capped the fund management fee at 0.75 percent of DIS constituent funds’ net asset level.

It’s hoped that the proposed legislation will be approved in July and enacted by the end of this year.

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