Employers and employees in Hong Kong consider the funds provided by Mandatory Provident Fund to be inadequate to meet their retirement needs, yet there’s little motivation among them to address the issue, according to a new survey by Towers Watson.
The survey shows a degree of consensus in that 70% of respondents view the MPF retirement scheme to be insufficient, and it also reveals the different perspectives between employers and employees in selecting MPF providers and relevant MPF arrangement.
“Every member should bear in mind that the MPF is a vital form of retirement protection," says Philip Tso, Head of Investment, Towers Watson Hong Kong.
Tso adds that all MPF members should review their portfolios regularly and pick the MPF provider which best fits their needs. They should adjust their portfolio at different life stages in view of the long MPF investment horizon.”
According to the survey, employees ranked retirement scheme as the second most important benefit, following medical/dental benefits.
However, about 70% of employers and employees each agreed that the current MPF contribution levels are insufficient for retirement purpose. And according to the employers, around 25% of employees have complained about the low investment returns of the MPF scheme, and around 18% about the high fees, although more than 35% have had no complaints.
About 70% of employees have not made voluntary MPF contributions and more than 90% of employers are offering basic MPF schemes only. 26.8% of employees consider tax incentive the most effective way to encourage employees to pay voluntary contributions.
“As MPF is one of the key income sources for retirement, both employees and employers need more motivation to put more emphasis on retirement planning. For example, the government could consider offering more incentives to encourage MPF members to pay voluntary contributions.” says Tso.
In terms of areas of knowledge, on average, employees rate investment strategy as the number one area that they need to improve their knowledge of, followed by the areas in the MPF system and general retirement planning respectively. About 80% believe the government/MPFA should be responsible for educating the public about MPF.
Most employees go to the internet or the media for information of MPF scheme (40.1%), followed by the MPFA (26.7%). More people are getting information from friends and relatives (25.8%).
“Employees should not underestimate the importance of the knowledge on general retirement planning. They should put equal emphasis on this area as investment strategy – the latter is only part of their retirement planning,” says Tso.
“Although employees today know a variety of sources to obtain MPF information, they should be educated to search for reliable and independent sources, and employers, MPF providers and MPF express.com can help,” Tso adds.
Around 60% of employers have not reviewed the MPF providers since the inception of MPF in 2000. Meanwhile, almost 40% of employees are not considering switching their MPF providers when ECA is in effect.
The lack of concerns of both employers and employees towards MPF is an alarming issue. Employees have to be alert that the MPF provider chosen by their employers may not be an ideal one.
“Employees should better equip themselves on MPF arrangement and grasp the opportunities brought by ECA in November since they will grant greater autonomy of choices of MPF providers. They should also understand the importance of reviewing their MPF providers and performances in order to achieve optimal investment returns. Synergy can be achieved if they also make use of the ECA, which allows them to choose a provider that best meets their needs,” says Tso.
“It may also be due to the rapidly increasing MPF products on the market, making it harder for employees to distinguish the differences between the products and MPF providers. Thereby, our survey shows that employees prefer not having too many MPF investment funds. Education on ECA is highly important. Better education among employees will also enable ECA to be fully utilized,” he added.
Just under 50% of employees support MPFA’s proposal of early withdrawal of MPF benefits in case of terminal illness, and 63% believe it should be for critical illness, followed by long-term unemployment (47.7%). Almost 65% of employees are willing to convert their lump sum benefits into a regular income, with 70% of the better-educated ready to convert their lump sum into regular income.
“The survey findings reflect that receiving the MPF benefits on a regular basis seems to be more practical to the average employee, which can be considered by MPFA and regulatory body,” Tso says.
“However, the government should put efforts on educating the MPF members on the rationale of MPF scheme, namely, a form of retirement protection as well as to consider refining the design of MPF scheme, including the change of tax rules to ensure consistency between lump sum benefits and annuities. In view of MPF’s key role as a form of retirement protection, grounds for early withdrawal are therefore relatively limited to ensure that a certain level of retirement protection is available for those who reach retirement in Hong Kong.”
CFO Innovation Asia, 20 September 2012