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In response to reports on Mandatory Provident Fund (MPF) performance and fund fees, the Mandatory Provident Fund Schemes Authority (MPFA) has issued the following statement: 

Returns

1. Saving for retirement is a long-term process, which often lasts for up to 40 years. The MPF System has been in operation for only 15 years and is still in the development stage.
    
2. Scheme members should take a long-term view of their MPF investment and not be overly concerned with short-term return fluctuations. MPF investment adopts the dollar-cost averaging strategy, in which a fixed amount of money is invested in funds on a regular basis, which helps even out short-term volatility. It is not appropriate to evaluate the System’s performance based on one-year returns of MPF funds, let alone returns for a shorter period. 
    
3. As at 31 July 2015, total MPF assets had grown to $605 billion, of which $146 billion was investment return. This translates to an annualized internal rate of return of 4%, net of fees and charges, which is higher than the 1.7% yearly inflation rate over the same period.
    
4. The 4% of annualized internal rate of return is a System-wide figure. It does not mean all scheme members had the same return. Some had a better return, some not so good, depending on their choice of funds and when they started making contributions.
    
5. Under the MPF System, members can choose from the MPF funds available in the scheme in which they have enrolled. Their savings outcome and the return of the MPF System hinge on their investment decisions
    
6. There are different types of MPF funds, which invest in different markets and different assets. They have different investment strategies, returns and risk levels. MPF funds generally achieve returns similar to the returns in the markets they invest in.
    
7. Different types of MPF funds have different annualized rates of return. From the inception of the MPF System to the end of July 2015, the average annualized returns of the major fund types are as follows: 

Fund Type	Average annualized return (1 December 2000 to 31 July 2015)
Equity Fund	4.8%
Mixed Asset Fund	4.3%
MPF Conservative Fund	0.8%
Guaranteed Fund	1.3%
Bond Fund	2.9%
Money Market Fund and others	0.6%

 

8. It is not fair to compare the rate of return of MPF funds against that of one kind of investment product or a particular index. For example, it is not fair to compare the return of the low-risk MPF Conservative Funds, which invest mainly in bank deposits and bonds, against that of the Tracker Fund of Hong Kong, which tracks the Hang Seng Index. 
    

Fund fees

9. The MPFA has been working hard to drive down fund fees and has adopted various measures to do this. As a result, the average Fund Expense Ratio (FER) of all MPF funds has dropped 23%, from 2.1% in 2007 to a record low of 1.61% at the end of August 2015.
    
10. Currently, 39% of all MPF funds, or 176 funds, are low-fee funds, the FER of which does not exceed 1.3% or the management fees of which are no higher than 1%.
     
11. An MPF scheme is not an investment product. It is a bundle of services that goes far beyond simple investment management. It includes collecting and allocating employers’ contributions, assisting in chasing employers for outstanding contributions, providing statutory reporting to regulators, handling transfers between schemes and fund switches within schemes, and administering how and when withdrawals can be made.
     
12. Scheme members have long been encouraged to make use of the Fee Comparative Platform on the MPFA website to learn more about the fees and charges of different schemes and funds, in order to make investment decisions that suit their personal needs.
     
13. The MPFA agrees, however, that the rate of fee reductions needs to be faster and deeper. The MPFA will continue to introduce various measures to create more room for fee reductions. The MPFA will introduce the default investment strategy (DIS) next year (2016), the fee level of which will be capped at 0.75%.
     
14. The MPFA has also commissioned a consultant to do a feasibility study on setting up a single electronic platform to centralize as much scheme administration work as possible. This platform will greatly improve the user experience, allowing employers and employees to manage their MPF contributions and investments more easily and will help reduce administration costs.

Choosing funds

15. Although there are now 457 MPF funds in the market, with a total of 38 MPF schemes, each scheme has an average of only 12 funds.
     
16. The MPFA is aware, however, that some MPF scheme members do not know how to select funds or do not have the time to do so.
     
17. The design of the DIS will provide scheme members with an investment approach that is the preferred approach with regard to long-term retirement savings objectives. Mandating a standardized default investment strategy across all MPF schemes will simplify what can often be a difficult investment decision process for scheme members. Members can also actively opt for this strategy.
     
18. The investment risks of the DIS will automatically be reduced as a member approaches age 65, and its introduction can help boost competition, thereby forcing fees down.

 
The MPFA has always accorded top priority to protecting and enhancing scheme members’ interests. It will continue to refine the System, urge trustees to lower fund fees, increase fund transparency, simplify the System and increase its efficiency to create greater room for fund reduction, which can mean a higher net return for MPF members.
 
－Ends－

17 September 2015