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MPFA report indicates continuous growth in voluntary contributions for extra retirement protection
The MPFA today (22 August) issued the annual statistical report, entitled Statistical Analysis of Accrued Benefits Held by Scheme Members of Mandatory Provident Fund Schemes. The report provided statistics relating to various types of Mandatory Provident Fund (MPF) accounts, the number of scheme members and amount of contributions, as well as the MPF held in the accounts of scheme members as at end 2018.
The report indicated that, as at end of 2018, there were a total of 9.76 million MPF accounts, consisting of 4.12 million contribution accounts and 5.64 million personal accounts. These accounts were held by a total of 4.37 million scheme members1 . As of end of 2018, the total MPF assets amounted to $813 billion. The total MPF assets has exceeded $910 billion according to the figures published in the June 2019 Issue of Mandatory Provident Fund Schemes Statistical Digest.
From 2009 to 2018, the total amount of voluntary contributions (VCs) (excluding Special Voluntary Contributions (SVCs))2 grew by 167%, from $4.3 billion to $11.6 billion. As a percentage of total contributions, VCs rose from 10% to 16% during this period. An MPFA spokesperson said, “The MPF is a long-term investment, spanning 30 to 40 years, helping the working population save for retirement as a result of the compounding effect. The MPFA encourages scheme members to make voluntary contributions on top of their mandatory contributions to boost their retirement savings.”
The length of contribution period and the amount of contributions have a great effect on the MPF of scheme members accumulated. As at end of 2018, there were about 90,000 employee contribution accounts that were set up when the MPF System was launched in December 2000 and received contributions continuously. For these accounts, the average MPF derived from mandatory contributions (MCs) amounted to $360,000. About 30,000 accounts of these also received VCs and the average MPF derived from both MCs and VCs amounted to $840,000.
The report also contained examples, illustrating the impact of making VCs on scheme members’ MPF. Assuming that a young person who has just entered the job market makes only mandatory contributions (i.e. a combined contribution of 10% by employer and employee) over a 40-year contribution period, in terms of present value, the estimated MPF would be about $1.3 million. If he makes an extra 5% of his/her relevant income as tax deductible voluntary contributions, in terms of present value, the estimated MPF would be $2 million, which is 50% more than the amount accumulated from making mandatory contributions alone.3
Moreover, the report also found that regardless of their age or gender, scheme members generally showed a stronger preference for equity funds and mixed assets funds, constituting 39% and 36% of their MPF respectively, as at end of 2018.
Scheme members are reminded that when choosing MPF funds, they should be aware of their risk tolerance level and investment goals so as to formulate appropriate investment strategies.
The latest issue of the Statistical Analysis of Accrued Benefits Held by Scheme Members of Mandatory Provident Fund Schemes is now available on the MPFA website.
－Ends－
22 August 2019
1. Employees, self-employed persons and personal account holders.
2. SVC refers to voluntary contributions paid directly by a relevant employee to the trustee. Unlike general voluntary contributions, these contributions are non-employment related, i.e. contributions do not go through the employer, and withdrawal of MPF is neither tied to employment nor subject to preservation requirements.
3. Assuming that the member has a monthly income of $18,000, and that the expected annual investment return is 2% after fees and charges and inflation. The estimated amount of MPF is calculated at present value. The monthly income and annual investment return are assumed to remain the same during the 40-year contribution period. These examples are hypothetical examples intended for illustration purposes only. All values and figures do not represent, promise or guarantee the actual amount of MPF a scheme member will receive.
The report indicated that, as at end of 2018, there were a total of 9.76 million MPF accounts, consisting of 4.12 million contribution accounts and 5.64 million personal accounts. These accounts were held by a total of 4.37 million scheme members1 . As of end of 2018, the total MPF assets amounted to $813 billion. The total MPF assets has exceeded $910 billion according to the figures published in the June 2019 Issue of Mandatory Provident Fund Schemes Statistical Digest.
From 2009 to 2018, the total amount of voluntary contributions (VCs) (excluding Special Voluntary Contributions (SVCs))2 grew by 167%, from $4.3 billion to $11.6 billion. As a percentage of total contributions, VCs rose from 10% to 16% during this period. An MPFA spokesperson said, “The MPF is a long-term investment, spanning 30 to 40 years, helping the working population save for retirement as a result of the compounding effect. The MPFA encourages scheme members to make voluntary contributions on top of their mandatory contributions to boost their retirement savings.”
The length of contribution period and the amount of contributions have a great effect on the MPF of scheme members accumulated. As at end of 2018, there were about 90,000 employee contribution accounts that were set up when the MPF System was launched in December 2000 and received contributions continuously. For these accounts, the average MPF derived from mandatory contributions (MCs) amounted to $360,000. About 30,000 accounts of these also received VCs and the average MPF derived from both MCs and VCs amounted to $840,000.
The report also contained examples, illustrating the impact of making VCs on scheme members’ MPF. Assuming that a young person who has just entered the job market makes only mandatory contributions (i.e. a combined contribution of 10% by employer and employee) over a 40-year contribution period, in terms of present value, the estimated MPF would be about $1.3 million. If he makes an extra 5% of his/her relevant income as tax deductible voluntary contributions, in terms of present value, the estimated MPF would be $2 million, which is 50% more than the amount accumulated from making mandatory contributions alone.3
Moreover, the report also found that regardless of their age or gender, scheme members generally showed a stronger preference for equity funds and mixed assets funds, constituting 39% and 36% of their MPF respectively, as at end of 2018.
Scheme members are reminded that when choosing MPF funds, they should be aware of their risk tolerance level and investment goals so as to formulate appropriate investment strategies.
The latest issue of the Statistical Analysis of Accrued Benefits Held by Scheme Members of Mandatory Provident Fund Schemes is now available on the MPFA website.
－Ends－
22 August 2019
1. Employees, self-employed persons and personal account holders.
2. SVC refers to voluntary contributions paid directly by a relevant employee to the trustee. Unlike general voluntary contributions, these contributions are non-employment related, i.e. contributions do not go through the employer, and withdrawal of MPF is neither tied to employment nor subject to preservation requirements.
3. Assuming that the member has a monthly income of $18,000, and that the expected annual investment return is 2% after fees and charges and inflation. The estimated amount of MPF is calculated at present value. The monthly income and annual investment return are assumed to remain the same during the 40-year contribution period. These examples are hypothetical examples intended for illustration purposes only. All values and figures do not represent, promise or guarantee the actual amount of MPF a scheme member will receive.
