LCQ11: Enhancing Mandatory Provident Fund system
************************************************
Question:
Statistics of a Mandatory Provident Fund (MPF) rating agency reveal that in the first nine months of this year, each MPF scheme contributor suffered an unrealised loss of over $56,000 on average. There are views that the MPF system must be enhanced to increase its capability to withstand market fluctuations. In this connection, will the Government inform this Council:
(1) as there are views pointing out that it is incumbent upon the authorities to provide MPF scheme contributors with contribution scheme options for capital preservation and growth, whether the authorities will promote the establishment of schemes with the rate of return linked to the inflation rate (such as a guaranteed rate of return of the inflation rate plus 1 per cent); if so, of the details; if not, the reasons for that;
(2) given that the minimum and maximum income levels for MPF contributions have not been adjusted since 2014, whether it knows if the Mandatory Provident Fund Schemes Authority (MPFA) has considered adjusting the relevant income levels according to the mechanism in a timely manner, so that enhancement to retirement protection for contributors can be kept abreast of the times; if MPFA has, of the details; if not, the reasons for that;
(3) given that the Government has earlier on undertaken to make the 5 per cent MPF contributions on behalf of low-income employees and self-employed persons who are exempted from making MPF contributions, and such arrangement is expected to be implemented upon the full implementation of the eMPF Platform, of the work progress of the contribution arrangement concerned, and whether there is a latest implementation timetable; and
(4) whether it will consider setting up a mechanism for members of the public to make MPF contributions on behalf of their partners taking care of the families on a full-time basis, and allowing the partners making the contributions to claim tax deduction for the relevant contributions, thereby extending the coverage of MPF retirement protection; if so, of the details; if not, the reasons for that?
Reply:
President,
Having consulted the Financial Services and the Treasury Bureau and the Mandatory Provident Fund Schemes Authority (MPFA), the consolidated response to the Member's question is set out below:
(1) The Mandatory Provident Fund (MPF) is a long-term savings and investment scheme for retirement purpose. Over the past 21 years, the MPF System has undergone local and global economic cycles and financial market volatility. During the period, the MPF recorded positive returns for 14 years, and those years with negative returns were often followed by a rebound. For example, the MPF saw a -30.2 per cent net return rate in 2008 as a result of the global financial crisis, but the net return rate in 2009 already increased significantly to 26.6 per cent and 7.8 per cent in 2010. Similarly, after recording a net return rate of -9.3 per cent in 2018 due to investment market volatility, the MPF registered a net double-digit return in both 2019 and 2020 (12.2 per cent and 11.7 per cent respectively). MPF scheme members need not be overly concerned about short-term market volatility or investment performance in a particular year.
At present, the MPF System offers over 400 investment fund options such as equity, bond, and mixed assets. To diversify MPF investment and provide scheme members with more investment options that could yield relatively stable returns, the Government introduced a number of measures in recent years, including facilitating MPF investment in Mainland A-shares and bonds issued or unconditionally guaranteed by the Central People's Government, its central bank and the three Mainland policy banks. Since 2017, each MPF scheme is also required to provide a Default Investment Strategy (DIS) featuring diversified global investment, age-linked and automatic risk adjustment mechanism and fee caps, making it suitable for long-term retirement savings and investment. The DIS fund performance has surpassed inflation rates. Given the objective of the privately managed MPF System and in view of the myriad choices of investment, the Government has no plan at this stage to set up a MPF fund that guarantees investment return or pegs with inflation rate.
The Government and the MPFA will continue to review from time to time the types and products suitable for MPF investment to enhance the retirement savings of scheme members, while striking a balance between investment returns and risks.
(2) The MPFA has conducted a review on the minimum and maximum levels of relevant income under the MPF System for the review cycle of 2018-2022 in accordance with the Mandatory Provident Fund Schemes Ordinance. The Government is studying the MPFA's review report, and prudently considering and assessing relevant factors, including the impact of the fifth wave of the COVID-19 epidemic on the public and small and medium-sized enterprises, and will report to the Legislative Council in due course.
(3) The Government plans to implement the proposal of paying MPF contributions for employees and self-employed persons who are exempted from making MPF contributions due to low income after the full operation of the eMPF Platform. The MPFA and the eMPF Platform Company Limited are pressing ahead with the development of the eMPF Platform. The target is to enable the full operation of the eMPF Platform in 2025.
(4) The MPF System is the second pillar system under the multi-pillar retirement protection model as recommended by the World Bank. As an employment-based system, the MPF System is designed to provide basic retirement protection for the working population. Non-working population is not under the coverage of the MPF System. The MPF System and other pillars of retirement protection (including social security programmes, public services and personal savings) complement and support each other. Besides, the HKMC Annuity Limited launched the HKMC Annuity Plan in 2018, which seeks to help retirees transform their savings into lifelong streams of fixed and guaranteed annuity income and to assist them in better retirement financial planning. The Government has no plan to expand the coverage of the MPF System at present.
Ends/Wednesday, November 2, 2022
Issued at HKT 11:17
Issued at HKT 11:17
NNNN