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Default Investment Strategy to be launched on 1 April 2017 Trustees will send notices to all scheme members starting today
Following the completion of the legislative process for the Mandatory Provident Fund Schemes (Amendment) Ordinance 2016, the Default Investment Strategy (DIS) will be launched on 1 April 2017. In order to let all Mandatory Provident Fund (MPF) scheme members understand the possible impact of the new law on their MPF accounts and the key features of the DIS, the trustees will send a DIS Pre-Implementation Notice (DPN) to holders of all 9.1 million accounts from today (12 December) until the end of January 2017.
The DPNs and the updated offering documents of all 32 MPF schemes were uploaded on the Mandatory Provident Fund Schemes Authority (MPFA) website and the respective trustees' websites today.
MPFA Non-executive Director Dr John Poon said, “The DIS is another milestone and a major reform of the MPF System. This is especially so as the DIS has fee caps, which will have a benchmarking effect, enhancing competition among MPF service providers and bringing about further MPF fee reductions.”
Each MPF scheme has to offer a DIS starting from 1 April 2017, as required by law. The DIS is an investment solution consisting of two mixed assets funds: the Core Accumulation Fund (CAF) and the Age 65 Plus Fund (A65F). Each DIS has three features: globally diversified investment, automatic reduction of investment risk as scheme members approach retirement age, and fee caps.
Dr Poon said, “The launch of the DIS will address public concerns about the difficulty of selecting MPF funds. The DIS is also an investment strategy that provides better retirement protection, helping scheme members manage their retirement savings that span over several decades.”
The law requires the CAF to hold 60% of its assets in higher risk assets, which generally means global equities, and the remaining 40% in lower risk assets, which generally means global bonds. The A65F is required to hold only 20% of its assets in higher risk assets. Both funds should be invested in a globally diversified manner and in different asset classes, with the aim of reducing and diversifying investment risk.
Once scheme members choose to invest their MPF in the DIS, the benefits they accumulate at or before age 49 will be fully invested in the CAF. When they reach the age of 50, the trustee will automatically adjust their portfolio every year, reducing their holding in the CAF and increasing their holding in the A65F. When they reach age 64, all their benefits will be held in the A65F.
Regarding the fee caps, the management fees must not be over 0.75% of the net asset value of the funds per year, and the recurrent out-of-pocket expenses must not be over 0.2% of the net asset value of the funds per year.
Dr John Poon said, “The amount of fees and expenses that are charged to a fund can have a significant impact on the long-term investment outcome. When fees are lower, all other things being equal, the funds’ net return will improve.”
He added, “This is the first time statutory fee caps have been imposed on the management fees of MPF funds in Hong Kong. The 0.75% management fees level of the DIS funds is also the lowest among all mixed assets funds currently available in the MPF market.”
When the new law takes effect on 1 April 2017, if scheme members do not provide their trustees with investment instructions, all new MPF benefits (whether they are put into accounts set up before or after 1 April 2017) will be invested according to the DIS, in general.
For benefits accrued before 1 April 2017, if the scheme members have never provided trustees with any investment instructions and if the benefits are currently in the default investment arrangements (DIAs) of MPF schemes, they will, in general, be invested according to the DIS instead of the DIA starting from 1 April 2017. The latest information provided by trustees shows that there are about 700,000 such accounts.
On the other hand, all scheme members will have more investment choices starting on 1 April 2017. They can actively choose to invest their MPF according to the DIS, in the CAF, A65F or both.
MPFA Managing Director Mrs Diana Chan urged scheme members to carefully read all the letters and DPNs sent by their trustees. To help scheme members identify these important documents, a DIS icon will be marked on the envelopes carrying the documents.
She said, “The MPFA calls on all scheme members to learn more about this new product and the possible impact the new law will have on their MPF accounts. They should also take this opportunity to check the number of accounts they have, the trustees and schemes their accounts are with, the fund choices they have made, and the fee levels and performance of their chosen funds. If they have changed their correspondence address, they should contact their trustees immediately to update it. I urge all scheme members to take an active role in managing their MPF. If they have more than one account, they should consider consolidating them.”
In addition to the DPNs being sent by the trustees, the MPFA will roll out a series of publicity and education activities from today, using various channels to introduce the key features of the DIS and to explain the impact of the legislative changes on scheme members.
Dr Poon pointed out that reforms to the MPF System require all three parties – the MPFA, the trustees and scheme members – to work closely together. He said, “MPF benefits are the hard-earned money of scheme members. All scheme members should take this opportunity to spend some time to learn more about their accounts and investment. It is your MPF; it is your choice. Take control of your MPF!”
Mandatory Provident Fund Schemes Authority (MPFA) Non-executive Director Dr John Poon (second from right), Managing Director Mrs Diana Chan (second from left), Chief Corporate Affairs Officer and Executive Director Mr Cheng Yan-chee (first from left) and Head (Trustees Supervision) Mr Joseph Lee (first from right) explained the impacts of the Default Investment Strategy on scheme members and the preparations by the MPFA and trustees at a press conference today.
– Ends –
12 December 2016
The DPNs and the updated offering documents of all 32 MPF schemes were uploaded on the Mandatory Provident Fund Schemes Authority (MPFA) website and the respective trustees' websites today.
MPFA Non-executive Director Dr John Poon said, “The DIS is another milestone and a major reform of the MPF System. This is especially so as the DIS has fee caps, which will have a benchmarking effect, enhancing competition among MPF service providers and bringing about further MPF fee reductions.”
Each MPF scheme has to offer a DIS starting from 1 April 2017, as required by law. The DIS is an investment solution consisting of two mixed assets funds: the Core Accumulation Fund (CAF) and the Age 65 Plus Fund (A65F). Each DIS has three features: globally diversified investment, automatic reduction of investment risk as scheme members approach retirement age, and fee caps.
Dr Poon said, “The launch of the DIS will address public concerns about the difficulty of selecting MPF funds. The DIS is also an investment strategy that provides better retirement protection, helping scheme members manage their retirement savings that span over several decades.”
The law requires the CAF to hold 60% of its assets in higher risk assets, which generally means global equities, and the remaining 40% in lower risk assets, which generally means global bonds. The A65F is required to hold only 20% of its assets in higher risk assets. Both funds should be invested in a globally diversified manner and in different asset classes, with the aim of reducing and diversifying investment risk.
Once scheme members choose to invest their MPF in the DIS, the benefits they accumulate at or before age 49 will be fully invested in the CAF. When they reach the age of 50, the trustee will automatically adjust their portfolio every year, reducing their holding in the CAF and increasing their holding in the A65F. When they reach age 64, all their benefits will be held in the A65F.
Regarding the fee caps, the management fees must not be over 0.75% of the net asset value of the funds per year, and the recurrent out-of-pocket expenses must not be over 0.2% of the net asset value of the funds per year.
Dr John Poon said, “The amount of fees and expenses that are charged to a fund can have a significant impact on the long-term investment outcome. When fees are lower, all other things being equal, the funds’ net return will improve.”
He added, “This is the first time statutory fee caps have been imposed on the management fees of MPF funds in Hong Kong. The 0.75% management fees level of the DIS funds is also the lowest among all mixed assets funds currently available in the MPF market.”
When the new law takes effect on 1 April 2017, if scheme members do not provide their trustees with investment instructions, all new MPF benefits (whether they are put into accounts set up before or after 1 April 2017) will be invested according to the DIS, in general.
For benefits accrued before 1 April 2017, if the scheme members have never provided trustees with any investment instructions and if the benefits are currently in the default investment arrangements (DIAs) of MPF schemes, they will, in general, be invested according to the DIS instead of the DIA starting from 1 April 2017. The latest information provided by trustees shows that there are about 700,000 such accounts.
On the other hand, all scheme members will have more investment choices starting on 1 April 2017. They can actively choose to invest their MPF according to the DIS, in the CAF, A65F or both.
MPFA Managing Director Mrs Diana Chan urged scheme members to carefully read all the letters and DPNs sent by their trustees. To help scheme members identify these important documents, a DIS icon will be marked on the envelopes carrying the documents.
She said, “The MPFA calls on all scheme members to learn more about this new product and the possible impact the new law will have on their MPF accounts. They should also take this opportunity to check the number of accounts they have, the trustees and schemes their accounts are with, the fund choices they have made, and the fee levels and performance of their chosen funds. If they have changed their correspondence address, they should contact their trustees immediately to update it. I urge all scheme members to take an active role in managing their MPF. If they have more than one account, they should consider consolidating them.”
In addition to the DPNs being sent by the trustees, the MPFA will roll out a series of publicity and education activities from today, using various channels to introduce the key features of the DIS and to explain the impact of the legislative changes on scheme members.
Dr Poon pointed out that reforms to the MPF System require all three parties – the MPFA, the trustees and scheme members – to work closely together. He said, “MPF benefits are the hard-earned money of scheme members. All scheme members should take this opportunity to spend some time to learn more about their accounts and investment. It is your MPF; it is your choice. Take control of your MPF!”
Mandatory Provident Fund Schemes Authority (MPFA) Non-executive Director Dr John Poon (second from right), Managing Director Mrs Diana Chan (second from left), Chief Corporate Affairs Officer and Executive Director Mr Cheng Yan-chee (first from left) and Head (Trustees Supervision) Mr Joseph Lee (first from right) explained the impacts of the Default Investment Strategy on scheme members and the preparations by the MPFA and trustees at a press conference today.
– Ends –
12 December 2016
