Info Center

In response to views expressed today by organizations on the Mandatory Provident Fund (MPF) System, the Mandatory Provident Fund Schemes Authority (MPFA) would like to respond as follows:

I.   Returns

1. According to the latest statistics, as at the end of October 2015, retirement assets accumulated in the MPF System amounted to nearly $600 billion, of which some $120 billion was net investment returns (after the deduction of fees and expenses). The System’s annualized rate of return from December 2000 to October 2015, was 3.4%, higher than the average annual inflation rate of 1.8% over the same period.
    
2. Saving for retirement is a long-term process, often lasting up to 40 years. The MPF System has been in operation for only 15 years and is still in the development stage.
    
3. Scheme members should take a long-term view of their MPF investments and not be overly concerned with short-term return fluctuations. MPF investments adopt 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.

II.   MPF fees

4. 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 24%, from 2.1% in 2007 to a record low of 1.60% at the end of November 2015.
    
5. Currently, 39% of all MPF funds, or 180 funds, are low-fee funds, whose FER does not exceed 1.3% or whose management fees are no higher than 1%.
    
6. 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.
    
7. The MPFA will introduce the Default Investment Strategy (DIS) at the end of next year (2016), whose fee level will be capped at 0.75%, and this fee level will be just the starting point. The MPFA will consider whether there is room for a further reduction in fees one or two years after the implementation of the DIS.
    
8. We believe the DIS will not only provide better investment protection for scheme members who do not, or do not want to, make a choice of funds, but may also serve as a benchmark for other MPF funds and a driving force for competition and fee reduction.
    
9. In addition, the MPFA is also exploring the feasibility of 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.

III.  Mechanism allowing MPF benefits to be offset against long service and severance payments 

10. Offsetting is a government policy. It involves not just employers’ affordability and the business environment, but also employees’ interests. Employers and employees should have a rational discussion of the issue to find a solution and seek a consensus. As the regulator of the MPF System, the MPFA carries out its duties according to the law.

 
－Ends－

1 December 2015