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In response to media enquiries on a study on MPF performance conducted by a federation of labour unions, the Mandatory Provident Fund Schemes Authority (MPFA) issued the following statement:
 
MPF performance

• Regarding the performance of the Mandatory Provident Fund (MPF), from the launch of the MPF System in December 2000 to 30 June 2014, the MPF System received total net contributions of $410 billion and had a net investment return of $130 billion. This translates to an annualized rate of return of 4.3%, net of fees, outperforming the 1.6% inflation rate over the same period. 
• The MPF is a long-term investment, which often lasts for 30 to 40 years. Scheme members should not be overly concerned about short-term volatility, which can be evened out by the dollar-cost averaging nature of the MPF over time. Over the years, the MPFA has been disseminating these messages to scheme members through various education and publicity activities.
• Given that the MPF is a long-term investment and that there are different types of MPF funds, which may invest in different overseas markets and different assets, and have different investment strategies, returns and risk levels, it is neither appropriate nor fair to compare the short-term return of MPF funds of a specific period with that of other investment products or any particular index. 
• There are different types of MPF funds with vastly different rates of return and risk levels. The Tracker Fund, on the other hand, is strictly a Hong Kong equity fund. Comparing the rates of return of MPF funds against that of a single market equity fund is inappropriate.
• Similarly, the Exchange Fund has its own investment strategy, so its performance should not be used as a yardstick against which to measure the return of the many different types of funds. 
• The performance of MPF investment is measured by net returns after fees. Unlike operating other investment funds in the market, trustees operating MPF funds have a number of additional administrative duties, including verifying the amount of contributions made by employers for each of their employees, providing assistance in recovering outstanding contributions, and reporting to the MPFA cases of employers defaulting on contributions. Therefore, the rate of return of MPF funds should not be compared against that of retail funds.

"Core fund"

• The Government and the MPFA have proposed introducing a "core fund" as the standardized default fund of all MPF schemes, and are consulting the public on the “core fund” proposal until 30 September. 
• We are pleased to learn that the federation supports the introduction of a "core fund", and we thank them for their views. The "core fund" can be launched in different ways, and we will continue to seek and consider the views and suggestions of different parties and study them in detail. We plan to submit a detailed implementation proposal to the Government in late 2014 or early 2015.
• The "core fund" is expected to provide a benchmark for the fees and performance of MPF funds, thereby increasing market competition and reducing fees. 

Enhancing the system to facilitate fee reductions

• The retirement protection system in Hong Kong was developed based on the multi-pillar model advocated by the World Bank. The MPF System is one of the pillars but was not designed to meet all retirement needs on its own. It has to work together with the other pillars, including a social safety net, other social welfare measures, personal savings and insurance, to fully meet the retirement needs of the elderly.
• The MPFA has been striving to enhance the MPF System to provide as much retirement protection to scheme members as possible under the existing framework. Over the years, we have introduced various measures to refine the System and to drive fees down. For example, the Employee Choice Arrangement (ECA) was introduced to give employees greater autonomy over their MPF, thereby boosting market competition and facilitating fee reductions. 
• In fact, fund fees had already been going down even before the launch of ECA. The average Fund Expense Ratio (FER) has declined by almost 20% to the current 1.69% from 2.1% in 2007.
• The MPFA agrees that the current fee level is still on the high side and will continue to push them down through various means, one of which is the introduction of the “core fund” which is expected to serve as a benchmark for the fees and performance of MPF funds, increasing market competition and reducing fees. 
• The MPFA will continue to call on the MPF industry to reduce fees and introduce low-fee funds. It will also endeavour to boost the efficiency of the MPF System, encouraging the use of electronic means and streamlining procedures to lower costs for the benefit of every scheme member.

- Ends -
 

4 September 2014