Hong Kong’s MPF marks 25 years with strong returns, ‘growing public confidence’

The Mandatory Provident Fund (MPF) turns 25 years old this month, with most of its pension funds delivering solid returns that have enabled all but the most conservative members to outpace both inflation and bank deposits, according to data from the pension regulator.\nThe year-to-date net investment return of the MPF stood at 15 per cent, putting the retirement scheme on track for its best year since 2017, when it reported an annual return of 22.3 per cent, according to data from the Mandatory Provident Fund Schemes Authority (MPFA).\nChairwoman Ayesha Macpherson Lau said the MPF had delivered its 4.75 million members returns that exceeded inflation over the last 25 years. MPF total assets had grown to a record HK$1.5 trillion (US$192 billion), she added in a blog post on Tuesday.\n“Before the implementation of the MPF, only about one-third of Hong Kong’s workforce had some form of retirement protection,” she said. “With the implementation of the MPF system, nearly 100 per cent of the workforce is now covered by retirement protection.”\nEstablished in 2000, the MPF is a compulsory retirement scheme. It collects monthly contributions from employers and employees, each at 5 per cent of a worker’s monthly salary, or up to HK$3,000 a month. Employees can choose to invest their contributions in different investment funds and can make additional contributions.\nAs of the end of October, all fund types had recorded positive annualised investment returns since the inception of the MPF on December 1, 2000, Lau said.\nThe best performers were equity funds, with an annualised net return of 5 per cent, followed by mixed assets funds, which invest in both stocks and bonds, with an annualised net return of 4.5 per cent. The two types of funds represented 80 per cent of all MPF assets, she said.\nBond funds, which represent just 4 per cent of the total MPF assets, had a 1.9 per cent annual return over the 25-year period, beating inflation of 1.8 per cent during the same period, as well as bank time deposits, which usually offered around 1 to 3 per cent per annum.\n\nThose who chose the most conservative investment options, however, lost out to inflation, as the MPF’s guaranteed funds had an annualised return of 1.2 per cent, while money market funds returned 1 per cent. These funds represent 16 per cent of total MPF assets.\nMPF members with limited investment knowledge could choose to invest in the default investment strategy (DIS), which adopted a diversified investment approach and had a 6.9 per cent annual return since its introduction in 2017, Lau said.\n“Its value-for-money features help increase retirement reserves,” Lau said.\nThis year, voluntary contributions accounted for 25 per cent of total MPF contributions, nearly double the proportion recorded during the same period a decade ago.\n“This reflects growing public confidence in the MPF as a tool for enhancing retirement reserves,” she said.\nLooking ahead, she said the MPF’s electronic platform [eMPF] would help to cut fees for MPF members. The eMPF, which commenced operation in June last year, is a single digital platform that allows both employers and employees to manage their MPF accounts online.\n“With MPF schemes joining the eMPF, the DIS fee cap will be reduced further, contributing to higher net investment returns,” Lau said.\nThe MPFA also planned to study other reforms that would give members more freedom to choose their providers, raise the minimum and maximum income levels for MPF contributions and enhance the DIS, she said.\nIn the past 25 years, the investment return of the MPF has fluctuated, said Kenrick Chung, chief corporate solutions officer at Bay Insurance Brokers in Hong Kong.\nIn the 2008 global financial crisis, the MPF lost 30.2 per cent, while the following year it bounced back 26.6 per cent, he said.\n“MPF members still have to take a long-term strategy for their retirement investment under the increasingly volatile market situation, especially those with low risk tolerance,” Chung said.\n