2. Question 1:
What is the Mandatory Provident Fund,
when was it launched, and what pension
schemes were in place before the launch
of the MPF?
Presented by Leslie Tong
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. 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
6. MPF Industry
Supervised by the MPFA (Mandatory Provident
Fund Schemes Authority)
Supervises the MPF Trustees and MPF Providers
Oversees MPF products and MPF intermediaries
(agents)
Also oversees ORSO schemes
Issued “best code of practice”
Source: http://www.mpfa.org.hk/eindex.asp
8. 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
9. Q3.4 LABU Presentation
What does ‘relevant income’ mean,
how are contributions calculated, and
what is the MPF ‘salary cap’?
10. Relevant income
• refers to all payments in monetary terms given
to employees
• wages, salary, leave pay, fee, commission,
bonus, gratuity, perquisite or allowance
• including housing allowance or other housing
benefit, but excluding severance payments
and long service payments.
11. Calculation of MPF Contribution
• Calculate individual employee's relevant income
and the amount of MPF contribution for each
contribution period
• Deduct the contribution from the employee's
income
• Pay the employer's contribution from employer’s
own funds for the employee's benefit
• Employees can choose to contribute more than
they are expected to the fund
12. Contribution Holiday and Periods
• Period of time employer does not contribute
to the pension fund
• Employers' contributions count from the first
day of employment
• Employee not required to make contributions
for first 30 days of employment and first
payroll cycle immediately following the 30-day
contribution holiday
13. MPF Salary Cap
• 20,000 per month in Hong Kong
• People want to raise it to 33,000
14. Q3.5:What is the difference
between an MPF trustee and an
MPF service provider?
Trustee
Appointed by other
companies
duties to comply with
standards and guidelines
TRUSTEES Service Provider
investment managers,
custodians and scheme
administrators
15. What is the difference between an
MPF trustee and an MPF service
provider?
Trustee
administer, manage,
and maintain all MPF
schemes
SERVICE Service Provider
PROVIDERS
trustee delegates part
of their functions to
other service
providers
16. How many MPF trustees are registered
with the MPFA?
As of 25 Feb 2012, there are
19 MPF trustees registered
with the MPFA.
Source:
http://www.mpfa.org.hk/english/reg_use/reg_use_amt/reg_use_amt.asp
18. What is an "MPF intermediary"?
"Mandatory Provident Fund"
an individual, a firm, partnership, corporation and
its directors
Two Types of MPFs:
1. "Corporate intermediary"
2. "Individual intermediary"
19. What do they do?
• sell MPF schemes
• advise clients
MPFA regulates them with a decentralized and
coordinated approach
Hong Kong has a rapidly aging population and most of
our workforce do not have any form of retirement
protection. Recognizing the need to provide for the long
term financial security of our workforce, the Hong Kong
SAR Government has implemented the Mandatory
Provident Fund system in year 2000.
20. Question 7
What is the Employee Choice Arrangement and why has
it been proposed?
21. 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
22. Q3.8:What is an MPF scheme
and is there more than one kind?
By Angel Lok & Axl Wong
23. What is an MPF scheme?
MPF = Mandatory Provident Fund
Implementation of MPF system – 1 Dec, 2000
Compulsory saving scheme for retirement of HK members of the
workforce aged between 18 – 65
Divides the workforce into regular employee, casual employee, and
self-employed persons
Monthly contribution of employee and employer - 5% of “relevant
income”(self-employed: monthly or yearly basis)
Can make extra, voluntary contributions
Contributions are entrusted to privately managed
trustees approved by the MPFA eg. Principal HK
24. Types of MPF schemes
Master Trust Schemes - most common
- open to relevant employees of participating employers, self-
employed persons, etc.
Employer-sponsored Schemes
- open to relevant employees of a single employer and its
associated companies
Industry Schemes
- employees of the catering and construction industries
- no need to change schemes if you change job
26. Q3.9: MPF constituent
funds
What is an MPF constituent fund and what different types of constituent funds are
available for employees to choose from?
27. Mandatory Provident Fund is a compulsory saving scheme (pension fund)
for the retirement of residents in HK.
Introduced on 1 December 2000
Cover all employees aged over 18 and under 65 with exemptions
Mandatory contributions of 5% of earnings each by employee and by
employer
Earnings subject to a current minimum limit of HK$5,000 p.m. and a current
maximum limit of HK$20,000 p.m., and excludes housing allowances/benefits
Mandatory contributions are immediately 100% vested with employees,
portable on change of employment, preserved until retirement
Full benefits paid on retirement, death, disability, permanent departure from
Hong Kong
Minimum of 30% of investments must be held in HKD denominated assets
28. Types
Investment Objective Investment Instrument Risk Level
MPF Conservative Fund To earn a rate of return similar to the Short-term bank deposits Relatively low
Hong Kong Dollar savings rate and short-term bonds
Money Market Fund To earn a rate of return comparatively short-term interest bearing Relatively low
higher than that of bank deposits or money market instruments
short-term certificates of deposit such as short-term bank
deposits, government bills or
commercial papers
Guaranteed Fund To provide a guarantee on the capital Bonds, stocks or short-term Relatively low(but
invested, or to achieve a guaranteed interest bearing money also depends on the
rate of return market instruments guarantee
conditions)
Bond Fund To earn stable income from interest and Bonds Low to medium
coupon rate and make profits from
bond trading
Mixed Assets Fund To achieve capital appreciation over the Stocks and bonds Medium to high
medium-to-long term
Equity Fund To achieve capital appreciation and a Stocks Relatively high
return higher than inflation over the long
term
Index Fund To earn a rate of return similar to that of Stocks Medium to high
the market index that the fund
replicates
29. Q3.10 Labu presentation
How was the Mandatory Provident
Fund performed over the past year,
past five years, and/or historically
since it was launched?
30. MPF performance: two ways of
looking at performance
• Year on year, quarter on quarter, month on
month – useful, with some recognition of risk,
for assessing investment managers and
products.
• Regular saver’s return, the cumulative result
of investing a regular sum each month –
relevant from an MPF member’s point of view.
31. Last year
• Sharpdaily Newspaper
• Recorded –ve growth (-8.4%)
• Was the worst performed since 2008 financial
tsunami
• Each employee lost around $12,000 for this
investment
• Very poor due to unstable international
circumstances
32. MPF performance - the results, a point
to point view
• For Balanced Funds – median returns
• 2001 - 13.3% poor
• 2002 - 10.1% poor
• 2003 +26.2% good
• 2004 +12.9% good
• 2005 + 8.8% fair
• Cumulative +20.0%, Annualised +3.7%
33. Q3.11: Fund Expense Ratio (FER)
The total percentage of fund assets used for
expenses
Expenses include administrative, management,
advertising, etc.
An expense ratio of 1% per annum means that each
year 1% of the fund's total assets will be used to
cover expenses
Sum of Expenses
FER =
Total Fund Assets
34. Fund Risk Indicator (FRI)
Indicates the risk of the MPF fund.
Higher FRI = Higher the risk = Greater volatility of
return
Provided in the Fund Fact Sheet
Help to choose the risk you like to take in your MPF
investment
No universal standard for benchmarking the level of
risk based on the Fund Risk Indicator
Mainly used for relative comparison.
35. Calculation
Calculated as the annualized standard deviation
Based on monthly rates of return of the fund over a 3-
year period
Calculated to two decimal places
= The rate of return of the fund for each full month of the measurement
period
= The average monthly rate of return of the fund over the measurement
period
36. 3.12 When and by whom can
accrued benefits be withdrawn from
a member’s MPF?
37. • Retirement age of 65 years
• 60 years of age and permanently ceasing the
employment or self-employment
• Permanently departing from Hong Kong
• Total incapacity
• Death
• Meeting small balance provisions (less than
HK$5,000)
38. Who can get the MPF:
• Employee
• Guardian (death, mentally incapacitated)
Source:
http://www.mpfa.org.hk/tc_chi/abt_mpfs/abt_
mpfs_fms/abt_mpfs_fms_bp/abt_mpfs_fms_bp.
html
39. Q3.13: 4 SUGGESTIONS ABOUT
IDENTIFYING RETIREMENT
INVESTMENT GOALS
MADE BY THE MPFA
• Set clear investment goals
Work out how much you would need
include all cost of living ,medical expenses, cost of
inflation
• Assess your own risk tolerance level
Factors (age, personality, financial status )of yourself
and your family
Take more risks a more aggressive investment
portfolio (may yield higher returns)achieve goals
sooner.
40. •ESTIMATE YOUR INVESTMENT
HORIZON
The Longer the horizon, the higher the risk tolerance level will be
and more affordable for a more aggressive investment portfolio.
•Adjust Your Investment
Portfolio at different life stages
Reviewing and adjusting at the appropriate time facilitates the
achievement of investment goal.
Growth Moderate
Aggressive Balanced Conservative
http://www.axa.com.hk/html/AXA_PRO/eng/mpf_eb/mpf/mpf_risk_profiling_assessment.html
