MPF is essentially a sound concept. Contrary to numerous negative press reports since its inception in 2000, MPF ticks many of the boxes necessary to qualify as a high-quality group retirement arrangement. MPF plans are: secure; flexible; tax efficient; and low cost.
The MPF system is however heavily compromised by misguided regulation and a lack of member requirements.
The first of these deficiencies appears to stem from the MPFA’s own declarations over the years that MPF was not designed for core retirement savings. They claim its function is merely to provide a basic retirement provision to complement private employer plans and personal savings.
This limited perspective partially explains why MPF providers have been hampered in their efforts to develop sophisticated products and why many employees have a negative perception of MPF.
Another key reason is the lack of understanding MPF product providers have of employee needs. A clear disconnect between member requirements and plan design has resulted in abysmal activity levels and embarrassingly low levels of voluntary contributions. Activity levels and voluntary contributions are the most accurate barometers of a plan’s success. On both of these measures, MPF is failing.
I) Why MPF plans are inappropriate for multi-national employers
MPF plans have been designed for employers of local nationals, not multi-national employers. MPF plans fail to recognize the varied demographics of workforces in Hong Kong. The lack of currency and international market options poses significant currency and investment risk to employees who will retire overseas.
MPF plans also have limited potential. They cannot be used as regional plans. When mobile employees are reassigned they either have to leave the scheme or retain fragmented benefits.
MPF plans fail to provide the necessary investment diversity required by members accumulating significant levels of retirement reserves. This lack of diversity makes it easy for financial advisors to criticize MPF plans and persuade employees to use alternative individual products.
Many plans impose restrictions on the ability to access voluntary contributions while still employed. This is a major deterrent to attracting significant levels of voluntary contributions.
Few providers can handle personal contributions. When they can, employees invariably have to establish and manage a separate plan.
Although MPF plans are not expensive, they represent poor value for money. The substantial assets under management and the low levels of employee engagement warrant either a superior service or lower fees.
MPF plans rely on brochures and websites to communicate with members. These are notoriously ineffective mediums. According to research by JPMInvest, 90% of employees ignore such communications and of the 10% that do read them, 90% do not understand them.
No matter how good a plan is it will fail to achieve its potential unless employees are educated about its benefits and are provided with practical assistance of how to use it.
Currently, no MPF plan automatically provides such services. Employers must engage outside consultants and fund this essential provision themselves.
The perceived and real limitations of MPF plans combine to make them ineffective top-up solutions. Such plans currently serve little purpose other than being easy to implement.
With activity levels less than 10% and voluntary contribution levels even lower, HR departments receive no positive recognition for operating MPF top-up plans.
They also have zero impact on the recruitment and retention of key talent.
II) The solution
Far superior plan options are available, some of which are just as easy to implement and operate as MPF top-up plans.
• Such plans provide extensive investment options and on-line functionality that immediately appeal to employees
• Essential member services are either included or can be easily incorporated into a plan’s design at no expense to employers
• Plans can be local, regional or global to suit your immediate and future requirements
• Effective plans are designed to target your specific H.R. objectives and their effectiveness is measurable
• Such plans result in considerable positive feedback for H.R. departments and they generate significant employee affinity towards employers
David Shaw
Managing Director
Indigo Global