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Financial Planning for Retirement               Questions 3.1-3.14
Question 1:What is the Mandatory Provident Fund,when was it launched, and what pensionschemes were in place before the lau...
Mandatory Provident Fund (MPF) Compulsory retirement scheme in Hong Kong All employers in Hong Kong have to join Implem...
Mandatory Provident Fund (MPF)          (continued)Before the implementation of MPF: Only some (not all) companies offer ...
Q3.2: WhoSupervises the MPF    Industry?
Mandatory Provident Fund Schemes Authority                           Role• The MPFA was established in September 1998 unde...
Responsible         Exercise such     for ensuring         Register        other functions     compliance      provident f...
Question 3.3What section(s) of the working population is/are        required to contribute to MPF?
Who needs to contribute to MPF?   All employees aged between 18 to 64   Self employed workers also included   Begin con...
Q3.4:What does ‘relevant income’ mean?"Relevant income" refers to all payments in monetary terms given toemployees, includ...
Contribution tables after the increase in the minimum level of relevantincome(1) Regular employeesMonthly paid regular emp...
What is the MPF ‘salary cap’    • MPF salary cap: Maximum income level employees      need to pay    • HK$20,000    • Empl...
Q3.5 What is the differencebetween an MPF trustee and anMPF service provider?
MPF Service Provider and Trustee  MPF service provider• consists of administrator,    • Investment manager  investment man...
MPF Trustee•Government approved         •legally obliged to make allprovider                     trust-related decisions w...
How many MPF trustees are registered with the MPFA?
MPF TrusteeThe MPFA vets all trustees to ensure thatthey meet the detailed requirements to be a trustee,e.g. capital adequ...
19 Approved MPF Trustees
Q3.6 What’s an MPF          Intermediary? There are two types of MPF intermediary:(i) “Corporate intermediary” ;(ii) “Ind...
How many are there?  as at November in 2011, there were about 30,000   registered MPF individual intermediaries in the ma...
What do they do?         • approach the client     1         • understanding the client     2         • selling/advising o...
Who regulates them?  The MPFA acts as the lead regulator and coordinator  The MPFA relies on the three financial regulat...
References  www.mpfa.org.hk  http://www.convoyfinancial.com/en_US/about-   convoy/corporate-news/20111214
Question 7What is the Employee Choice Arrangement and why has                 it been proposed?
Employee Choice Arrangement Allows employees to choose the MPF provider as well as the  different types of MPF funds. Ai...
s c h e me   a n d i s   t h e r emo r e t h a no n e k i n d ?
MPF(Mandatory ProvidentFund ) scheme   suitable retirement protection system   a mandatory, privately managed, fully    ...
Types of MPF Schemes   Master Trust Schemes   Employer-sponsored Schemes   Industry Schemes
 Mixed  Assets Fund Bond Fund Equity Fund Guaranteed Fund Money Market Fund-MPF Conservative  Fund Others
Question 3.10How has the MPF performed over the past year, over the    past five years, and/or since it was launched?
MPF Past Performance Total net asset value of all MPF schemes: HK$365.4billion (as at  December 2010) The average annual...
MPF Past Performance The average annual rate of return for different types of funds:                  Types of funds     ...
Q3.11 What do the terms Fund ExpenseRatio (FER) and Fund Risk Indicator (FRI)   mean and how is each one calculated?      ...
Fund Expense Ratio (FER) A standard measure which indicates the total  amount of fees and expenses charged to a fund Exp...
Fund Risk Indicator(FRI) Describes the risk of one’s MPF fund Measures that have been adopted is called  standard deviat...
Q12.• When and by whom can accrued  benefits be withdrawn from a  member’s MPF?
When? • retirement at age of 65 • early retirement at the age 60 • permanent departure from Hong KongSource: http://www.mp...
By whom? • total incapacity (certificate of a persons unfitness for a particular   kind of job with doctor note) • death (...
QUESTION 3.13:THE MPFA MAKES FOUR SUGGESTIONSTHAT PEOPLE SHOULD CONSIDER WHENIDENTIFYING THEIR RETIREMENTINVESTMENT GOALS....
REMEMBER TO: Set clear investment goals Assess your own risk tolerance level Estimate your investment horizon Adjust y...
ADDITIONAL INFORMATION:   Achievable goals, tailored to your needs   MPF is a long term investment   Past performance o...
Q3.14 What shouldemployees considerwhen choosing MPFfunds?http://www.mpfa.org.hk/tc_chi/mpf_edu/mpf_edu_laymi/mpf_edu_laym...
Clear investment objectivesEstimated expenditure required peryear after retirementClothing, food, housing, medicalcosts ...
Assessment of risk Assessed according to your age, character,personal and family member’s financialstatus etcIf exposed ...
Investment period Longer the investment period  ability to take risks are relatively higher, vice versa
Other factorsReview the portfolio at your differentstages of life  help improving yourinvestment efficiency.Fund’s inve...
Compiled fina question3 powerpoint t06
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Compiled fina question3 powerpoint t06

  1. 1. Financial Planning for Retirement Questions 3.1-3.14
  2. 2. Question 1:What is the Mandatory Provident Fund,when was it launched, and what pensionschemes were in place before the launch of the MPF? Presented by Leslie Tong
  3. 3. Mandatory Provident Fund (MPF) Compulsory retirement scheme in Hong Kong All employers in Hong Kong have to join Implemented on 1st December 2000 Both employers and employees contribute to the fund If your monthly salary is above $6500, the current contribution rate is 5% of salary, with a cap of $1000. Employer will choose a MPF provider. Employee can choose a fund offered by the MPF provider. Employee will receive the benefits upon retirement.
  4. 4. Mandatory Provident Fund (MPF) (continued)Before the implementation of MPF: Only some (not all) companies offer retirement benefits to their employees Different employers have different retirement schemes. It is governed under ORSO. (Occupational Retirement Schemes Ordinance) Source: Hong Kong Fact Sheet: MPF Sheet http://www.gov.hk/en/about/abouthk/factsheets/docs/mp f.pfd
  5. 5. Q3.2: WhoSupervises the MPF Industry?
  6. 6. Mandatory Provident Fund Schemes Authority Role• The MPFA was established in September 1998 under the Mandatory Provident Fund Schemes Ordinance (MPFSO) to regulate and supervise the operations of provident fund schemes. Mission• The mission of the Mandatory Provident Fund Schemes Authority (MPFA) is to ensure the provision of retirement protection for Hong Kongs workforce through an effective and efficient system of prudential regulation and supervision of privately managed provident fund schemes.
  7. 7. Responsible Exercise such for ensuring Register other functions compliance provident fund as are conferred with the schemes as or imposed on MPFSO registered the MPFA schemes Promote and Approve encourage the qualifieddevelopment of persons to be the retirement MPFSO approvedscheme industry trustees in Hong Kong Consider and Regulate the propose reforms affairs and to the law Make rules or activities of relating to guidelines for approved provident fund the payment trustees schemes of mandatory contributions
  8. 8. Question 3.3What section(s) of the working population is/are required to contribute to MPF?
  9. 9. Who needs to contribute to MPF? All employees aged between 18 to 64 Self employed workers also included Begin contribution after 60 days of employment People that are exempted are:  Self-employed hawkers  Household employees (domestic helpers)  Employees already covered under ORSO  Expatriate workers working in HK for less than one year  Expatriate workers already covered under overseas schemes. Source: www.gov.hk/en/about/abouthk/factsheets/docs/mpf.pdf
  10. 10. Q3.4:What does ‘relevant income’ mean?"Relevant income" refers to all payments in monetary terms given toemployees, including wages, salary, leave pay, fee, commission, bonus,gratuity, perquisite or allowance (including housing allowance or otherhousing benefit), but excluding severance payments and long servicepayments.How are contributions calculated?Increase in the Minimum Level of Relevant Income for MPF Contributionsto HK$6,500.The minimum level of relevant income in respect of Mandatory ProvidentFund (MPF) contributions has been increased to HK$6,500, effective 1November 2011, from the original level of HK$5,000.For the contribution periods starting on or after the effective date,employees with a monthly relevant income of less than HK$6,500 are notrequired to contribute, but their employers must make the employer’scontribution.Self-employed persons with a relevant income of less than HK$6,500 permonth or HK$78,000 per year do not have to make contributions.
  11. 11. Contribution tables after the increase in the minimum level of relevantincome(1) Regular employeesMonthly paid regular employees and their respective employersMonthly relevant incomeHK$Mandatory contribution amount HK$ Employer’s contribution Employee’s contributionLess than 6,500 Relevant income x 5% Not required6,500 - 20,000 Relevant income x 5% Relevant income x 5%More than 20,000 1,000 1,000
  12. 12. What is the MPF ‘salary cap’ • MPF salary cap: Maximum income level employees need to pay • HK$20,000 • Employees earning up to HK$20,000 pay 5 percent of their salary to the fund • Employees earning more than HK$20,000 pay the same maximum amount.Source:http://www.mpfa.org.hk/english/abt_mpfs/abt_mpfs_fms/abt_mpfs_fms_con/abt_mpfs_fms_con.htmlhttp://www.mpfa.org.hk/english/super/super_si/super_si_mie/files/Study_Notes_Eng.pdfhttp://mpf.hk/post/2011/11/24/MPF-contributions-cap-next-year-to-improve.aspxhttp://www.thestandard.com.hk/news_detail.asp?pp_cat=11&art_id=35508&sid=11611812&con_type=1&d_str=20070106
  13. 13. Q3.5 What is the differencebetween an MPF trustee and anMPF service provider?
  14. 14. MPF Service Provider and Trustee MPF service provider• consists of administrator, • Investment manager investment manager, custodian, and other person • provide services for the appointed or engaged purposes of the scheme. by the approved trustee
  15. 15. MPF Trustee•Government approved •legally obliged to make allprovider trust-related decisions with the beneficiary‘s interests in•An individual or mind, and may be liable fororganization which holds damages in the event of notand invests assets for the doing so.benefit of employees.
  16. 16. How many MPF trustees are registered with the MPFA?
  17. 17. MPF TrusteeThe MPFA vets all trustees to ensure thatthey meet the detailed requirements to be a trustee,e.g. capital adequacy, independent directors, relevantexperience etc.A trustee who has met all of these criteria and been approvedby the MPFA will be an approved trustee and can act as atrustee for a master trust, an employer sponsored scheme oran industry scheme.
  18. 18. 19 Approved MPF Trustees
  19. 19. Q3.6 What’s an MPF Intermediary? There are two types of MPF intermediary:(i) “Corporate intermediary” ;(ii) “Individual intermediary” it means a person who is engaged in:(i) selling MPF schemes; or(ii) advising clients on constituent funds or underlying approved pooled investment funds of MPF schemes.
  20. 20. How many are there?  as at November in 2011, there were about 30,000 registered MPF individual intermediaries in the market  around 12.5% were permitted to provide recommendation on securities and insurance policy.
  21. 21. What do they do? • approach the client 1 • understanding the client 2 • selling/advising on MPF schemes without 3 rendering specific investment advice • after sale service 4
  22. 22. Who regulates them?  The MPFA acts as the lead regulator and coordinator  The MPFA relies on the three financial regulators in Hong Kong: the Hong Kong Monetary Authority, the Securities and Futures Commission and the Insurance Authority
  23. 23. References  www.mpfa.org.hk  http://www.convoyfinancial.com/en_US/about- convoy/corporate-news/20111214
  24. 24. Question 7What is the Employee Choice Arrangement and why has it been proposed?
  25. 25. Employee Choice Arrangement Allows employees to choose the MPF provider as well as the different types of MPF funds. Aims at lowering the admin fees charged by MPF providers.  When there is more competition among MPF providers, it creates pressure and forces the MPF providers to lower the fees. Originally scheduled to come into effect in April 2011 Government has postponed it and it is now expected to come into effect in the second half of 2012 From: MPF Choice Put Back to July 2012. http://topics.scmp.com/news/hk-news-watch/article/MPF-choice-put-back-to-July-2012
  26. 26. s c h e me a n d i s t h e r emo r e t h a no n e k i n d ?
  27. 27. MPF(Mandatory ProvidentFund ) scheme suitable retirement protection system a mandatory, privately managed, fully funded contribution scheme Compulsory saving scheme Launched in December 2000
  28. 28. Types of MPF Schemes Master Trust Schemes Employer-sponsored Schemes Industry Schemes
  29. 29.  Mixed Assets Fund Bond Fund Equity Fund Guaranteed Fund Money Market Fund-MPF Conservative Fund Others
  30. 30. Question 3.10How has the MPF performed over the past year, over the past five years, and/or since it was launched?
  31. 31. MPF Past Performance Total net asset value of all MPF schemes: HK$365.4billion (as at December 2010) The average annual rate of return since inception (2000) is 5.4% (net of admin fees) Compared to the annualized composite CPI percentage for the same period: 0.7%
  32. 32. MPF Past Performance The average annual rate of return for different types of funds: Types of funds Rate of return in Rate of return 2011 since inception (2000) Mixed Asset Fund 8.7% 4.9% Equity Fund 10.2% 5.7% MPF Conservative 0.0% 1.2% Fund Guaranteed Fund 2.2% 1.6% Bond Fund 3.9% 3.9% Money Market Fund -0.4% 0.8% - Equity Fund consistently outperformed other funds. - Money Market Funds performed the poorest. Source: http://www.info.gov.hk/gia/general/201106/22/P201106220300.htm
  33. 33. Q3.11 What do the terms Fund ExpenseRatio (FER) and Fund Risk Indicator (FRI) mean and how is each one calculated? By Zephyr Chan and Yoyo Cheng
  34. 34. Fund Expense Ratio (FER) A standard measure which indicates the total amount of fees and expenses charged to a fund Expressed as a percentage of the funds net asset value May include management fees, safe custody and bank charges, legal and other professional fees, auditors remuneration, compensation fund levy to the MPFA, guarantee charges and other expenses.
  35. 35. Fund Risk Indicator(FRI) Describes the risk of one’s MPF fund Measures that have been adopted is called standard deviation Is calculated over a three-year period Shows the volatility of price as a percentage around the average price over the measurement period
  36. 36. Q12.• When and by whom can accrued benefits be withdrawn from a member’s MPF?
  37. 37. When? • retirement at age of 65 • early retirement at the age 60 • permanent departure from Hong KongSource: http://www.mpfa.org.hk/english/abt_mpfs/abt_mpfs_fms/abt_mpfs_fms_bp/abt_mpfs_fms_bp.html
  38. 38. By whom? • total incapacity (certificate of a persons unfitness for a particular kind of job with doctor note) • death (note that the MPF will be regarded as part of the members estate and can be claimed by the personal representative of estate) • small balance account of less than $5,000, no contributions made to a scheme for 12 months, and declared not to become employed or self-employed within the foreseeable futureSource: http://www.mpfa.org.hk/english/abt_mpfs/abt_mpfs_fms/abt_mpfs_fms_bp/abt_mpfs_fms_bp.html
  39. 39. QUESTION 3.13:THE MPFA MAKES FOUR SUGGESTIONSTHAT PEOPLE SHOULD CONSIDER WHENIDENTIFYING THEIR RETIREMENTINVESTMENT GOALS.WHAT ARE THEY? Presented by Leafynn Tan Leo Lam
  40. 40. REMEMBER TO: Set clear investment goals Assess your own risk tolerance level Estimate your investment horizon Adjust your investment portfolio at different life stages
  41. 41. ADDITIONAL INFORMATION: Achievable goals, tailored to your needs MPF is a long term investment Past performance of a fund is not a guide to its future performance Source: http://www.mpfa.org.hk/english/mpf_edu/mpf_edu_laymi/mpf_edu_laymi_uyn/ mpf_edu_laymi_uyn.html
  42. 42. Q3.14 What shouldemployees considerwhen choosing MPFfunds?http://www.mpfa.org.hk/tc_chi/mpf_edu/mpf_edu_laymi/mpf_edu_laymi.html Hayes Chu Caren Lam
  43. 43. Clear investment objectivesEstimated expenditure required peryear after retirementClothing, food, housing, medicalcosts etc.Inflation cost
  44. 44. Assessment of risk Assessed according to your age, character,personal and family member’s financialstatus etcIf exposed to higher riskmore aggressiveinvestment portfolioreturn may be higherfaster to achieve your investmentobjectives.
  45. 45. Investment period Longer the investment period  ability to take risks are relatively higher, vice versa
  46. 46. Other factorsReview the portfolio at your differentstages of life  help improving yourinvestment efficiency.Fund’s investrment objectives, toolsand assets.Fund’s market risk

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