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Monday, August 8, 2016, 23:26

Pension fund investors get 5.9% boost

By Duan Ting
Pension fund investors get 5.9% boost
According to the Mandatory Provident Fund Schemes Authority (MPFA), the MPF fund’s investment performance for the last 15 years saw a consolidated annualized rate of return of 3.1 percent — higher than the average inflation rate of 1.8 percent over the same period. (Asia news photo)

Employees banking on the Mandatory Provident Fund (MPF) to see themselves through in their sunset years have won a much needed reprieve, as the pension fund’s investment performance reversed a poor showing in the year’s first half with an almost 6-percent rebound in July.

The fund’s 5.92-percent jump in investment performance last month was attributed to fresh hopes brought about by aggressive monetary easing policies launched by global central banks as part of efforts to cushion the effects of Britain’s decision to quit the European Union.

According to MPF service provider Convoy, all categories of the Convoy MPF Composite Index posted gains in July, with the Equity Index rising by 9.08 percent month-on-month to 191.86, and the Bond Index picking up 0.05 percent to 155.41.

Fueled by a turnaround in the equity market last month, each MPF policyholder posted an average gain of HK$3,280 year-to-date.

For the period from January to June 24 this year, the pension fund had registered an average net loss of 2.23 percent year-on-year, according to independent investment research firm Morningstar.

In its investment performance report for the past 15 years, the Mandatory Provident Fund Schemes Authority (MPFA) said the fund’s investment performance for the period saw a consolidated annualized rate of return of 3.1 percent — higher than the average inflation rate of 1.8 percent over the same period.

Experts from local MPF service providers pointed out that, as the MPF is a long-term investment, its members should not be overly concerned about short-term market fluctuations, but should ensure that their investments are always in line with their risk tolerance level.

Stephen Fung, chief executive officer at AIA Pension and Trustee Co, explained that all investments, including MPF funds, do carry risks. “The performance of MPF funds would inevitably be affected by market movements.”

Michael Ha, investment director at BCT Group, said those who have lost money in MPF investments, probably, had been changing their portfolios too actively and missing out on the timing of gains.

Pension fund investors get 5.9% boost

In an attempt to resolve the MPF program’s old-age “high fees, low returns” gridlock, the Legislative Council passed the MPF Schemes (Amendment) Bill 2015 in May, with the introduction of a default investment strategy (DIS).

The total fees of the two constituent DIS funds (Core Accumulation Fund and Age 65 Plus Fund) will be capped at 0.95 percent each, comprising a management fee (including fund management, fund administration and custody expenses) capped at 0.75 percent of the funds’ net asset value, plus a capped 0.2 percent of recurrent out-of-pocket expenses (including legal and accounting expenses).

Local MPF firms have been adjusting their services to be better prepared for the upcoming launch of the new strategy in the first half of 2017.

Fung urged MPF members to get to know their investment target first and do more research and rebalance on their MPF investments so that they won’t be caught off-guard by any unforeseen shocks in the MPF performance.

Investors, he said, should also study their MPF accounts carefully and try to accurately interpret MPF performance, and review their investment portfolios regularly. It’s also necessary to master the skill of allocating funds based on professional advice.

Cheng Yan-chee, MPFA’s chief corporate affairs officer and executive director, emphasized that if members fail to adjust their investment portfolio within six months after the new strategy is launched, the trustees will send a special notice to them. If there’s still no response, members’ investment strategy will be automatically switched to the new DIS.

According to Lau Ka-shi, managing director and chief executive officer at pension products provider BCT Group, more than 10 percent of their members are interested in transferring their MPF plans to the new strategy.

Cheng said the next step after implementing the DIS will be to develop the electronic platform to simplify the administrative procedure and reduce operating costs.

The first stage in promoting the DIS began last month, with employees being reminded to review their investment portfolio regularly, and adjust it as they move into different stages in life to suit their personal needs.
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