HONG KONG - The city’s fund managers have added their chorus to mounting calls for the much criticized Mandatory Provident Fund (MPF) scheme to be overhauled to make it more appealing and effective in assuring the city’s retirees of a more stable life in their sunset years.
Investment restrictions under the private pension program should be relaxed to deal with a volatile financial climate and allow employees to seize the investment opportunities that might arise, the Hong Kong Investment Funds Association (HKIFA) said on Thursday.
The MPF, which started 17 years ago, has been discredited as being a “high-fee, low-return” program that has not been up to its mark in addressing the city’s rapidly graying population.
“When it launched the MPF in December 2000, the MPF Schemes Authority (MPFA) laid down stringent restrictions regarding the investable universes in order to protect MPF members’ assets in times of financial volatility,” said Luk Kim-ping, chairman of the HKIFA Pension Subcommittee.
“But, the investment environment has changed a lot since then and, with ultra-low interest rates lingering globally in the past decade, it’s very difficult for MPF fund managers to earn sufficient returns,” he said.
“It time the MPFA undertook a review to see if there’s any need to remove those strict investment guidelines.”
Association Chairman Arthur Bacci called the framework governing investments “too prescriptive”, adding it should be revamped to reflect developments in the capital markets and, ultimately, enable employees to capitalize on the opportunities available more effectively.
The association urged the MPFA to relax the investment restrictions, such as permitting investments in real estate investment trusts, exchanged-traded funds and government and corporate bonds. It also suggested that funds authorized by the Securities and Futures Commission be allowed on the MPF investment platform, and that alternative assets, such as infrastructure, be added to MPF schemes.
“The MPFA should add both the Shenzhen and Shanghai stock exchanges to the respective MPFA approved lists. The HKIFA is having discussions with respective financial regulatory bodies and their response has been positive,” said Luk.
HKIFA CEO Sally Wong revealed they have submitted their proposal to the MPFA to allow MPF members to invest in Shanghai and Shenzhen-listed A shares. “The MPFA will make up its mind after taking into account such factors as the stock market structure, the level of disclosure and capital remittance.”
“The corporation should also mull extending the investment universe to include other stock markets around the world,” she said.
The HKIFA’s proposals come on heels of this month’s launch of the default investment strategy (DIS) aimed at checking the exorbitant MPF investment fees and charges.
Under the 2016 Mandatory Provident Fund Schemes (Amendment) Ordinance, all MPF service providers are required to offer two DIS constituent funds with management fees and recurrent out-of-pocket expenses capped at 0.95 percent.
Starting this month, MPF contributors can make rotational investments in the Core Accumulation Fund and the Age 65 Plus Fund, based on the investment principles of global diversification and age-based de-risking to maximize returns while slashing costs.
The HKIFA also proposed exploring the feasibility of raising the mandatory MPF contribution rate, which is currently capped at 10 percent (5 percent for employees and 5 percent for employers) monthly. Contributions of employees earning more than HK$30,000 a month are capped at HK$1,500.