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Future Directions – Providing Better Investment Solutions for MPF Members
The Management Board of the Mandatory Provident Fund Schemes Authority (MPFA) today (12 March) discussed the consultation conclusions of the proposal to enhance the regulation of default arrangements1 in Mandatory Provident Fund (MPF) schemes by introducing a “core fund” as the standardized, low fee, default investment in all schemes.
The three-month public consultation, “Providing Better Investment Solutions for MPF Members”, jointly conducted by the Government and the MPFA, ended on 30 September 2014.
Noting the general support for the broad proposals set out in the consultation paper, the Management Board endorsed taking them forward as quickly as possible.
An MPFA spokesperson said, “The proposals agreed today represent a new policy direction for the MPF System. Mandating a standardized default investment strategy across all MPF schemes will simplify what can be a difficult investment decision process for scheme members. Meanwhile members can also actively opt for this strategy.
“The design of this default investment strategy will provide scheme members with an investment approach that is considered to be the preferred approach having regard to long-term retirement savings objectives. At the same time, members can be confident that they are getting good value as we will be imposing a fee cap on the strategy.”
The broad directions recommended by the Management Board are that:
The three-month public consultation, “Providing Better Investment Solutions for MPF Members”, jointly conducted by the Government and the MPFA, ended on 30 September 2014.
Noting the general support for the broad proposals set out in the consultation paper, the Management Board endorsed taking them forward as quickly as possible.
An MPFA spokesperson said, “The proposals agreed today represent a new policy direction for the MPF System. Mandating a standardized default investment strategy across all MPF schemes will simplify what can be a difficult investment decision process for scheme members. Meanwhile members can also actively opt for this strategy.
“The design of this default investment strategy will provide scheme members with an investment approach that is considered to be the preferred approach having regard to long-term retirement savings objectives. At the same time, members can be confident that they are getting good value as we will be imposing a fee cap on the strategy.”
The broad directions recommended by the Management Board are that:
- The default investment strategy2 in each MPF scheme should follow the same investment approach;
-
It will be applied to the MPF contributions and benefits of a member
- who does not, or has not, indicated a specific fund choice, or
- who specifically chooses to invest according to the default investment strategy;
-
The default investment strategy
- will be designed to automatically reduce investment risks as a member approaches age 65;
- will reduce risk by adjusting members’ MPF across two or more funds in each scheme;
- will charge management fees of no more than 0.75% of assets under management per annum. The Government and the MPFA will keep in view room for further reduction of this fee level upon the implementation of the fee control mechanism; and
- The performance outcomes of funds used in the default investment strategy in each scheme will be benchmarked against an agreed portfolio in order to increase transparency and consistency across schemes.
During the consultation, a total of 266 written responses were received. Views were also gathered from a wide range of interested parties at briefings arranged or attended by the MPFA.
In general, the majority of respondents indicated support for the policy direction set out in the consultation paper and agreed that the proposals would help address concerns about fees and investment choices. The consultation conclusions have been posted on the Government and MPFA websites.
It is expected that any necessary enabling legislation will be introduced in the Legislative Council before the end of 2015. Subject to the progress of the legislative processes and the preparation work, it is anticipated that the default investment strategy will be introduced by the end of 2016. In the meantime, the MPFA will continue to work with the industry on the details including the fund structures, disclosure, benchmarking and fee calculation.
The introduction of the default investment strategy is one of the MPFA’s initiatives to refine the System to bring better retirement protection to MPF scheme members. The MPFA is committed to building a retirement savings system valued by Hong Kong people.
– Ends –
12 March 2015
In general, the majority of respondents indicated support for the policy direction set out in the consultation paper and agreed that the proposals would help address concerns about fees and investment choices. The consultation conclusions have been posted on the Government and MPFA websites.
It is expected that any necessary enabling legislation will be introduced in the Legislative Council before the end of 2015. Subject to the progress of the legislative processes and the preparation work, it is anticipated that the default investment strategy will be introduced by the end of 2016. In the meantime, the MPFA will continue to work with the industry on the details including the fund structures, disclosure, benchmarking and fee calculation.
The introduction of the default investment strategy is one of the MPFA’s initiatives to refine the System to bring better retirement protection to MPF scheme members. The MPFA is committed to building a retirement savings system valued by Hong Kong people.
– Ends –
12 March 2015
1 Under the MPF System, scheme members have the right to make their own investment choices by selecting funds. For those who do not select funds, the trustees of the respective schemes will, by default, invest the scheme members’ contributions in one or more of the funds as specified in scheme rules. At present, different MPF schemes have different default arrangements and their risk and investment outcomes differ significantly.
2 “Core fund” was a term used during the public consultation to reflect the importance of the new default investment strategy for the MPF System. As the new default investment strategy would not be a single fund, the term “default investment strategy” would now be used.
2 “Core fund” was a term used during the public consultation to reflect the importance of the new default investment strategy for the MPF System. As the new default investment strategy would not be a single fund, the term “default investment strategy” would now be used.
