LCQ3: Mandatory Provident Fund schemes
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Question:
It has been reported that a research institute has estimated that last year, the Mandatory Provident Fund (MPF) suffered an annual unrealised investment loss of about $186.9 billion with a return rate of minus 15.6 per cent, which was higher than the drop in the Hang Seng Index (HSI) and property prices in Hong Kong in the same period. It is learnt that quite a number of members of the public are deeply dissatisfied that, having entrusted their hard-earned money to MPF trustees for making investments on their behalf, they have to pay management fees and administration fees even losses are recorded. In this connection, will the Government inform this Council:
(1) whether it knows in the past 10 years, among the MPF accounts from which money was completely withdrawn, the respective numbers of accounts the balances of which, at the time when money was completely withdrawn, recorded profits and losses after deducting accrued contributions, with a breakdown by the number of years for which such accounts had been set up (e.g. less than five years, five to 10 years, more than 10 years and up to 15 years, and more than 15 years);
(2) given that the MPF system has so far been implemented for over 22 years, during which the demographic structure, labour market, investment environment and social welfare system of Hong Kong have experienced quite a number of changes, whether the Government will conduct a comprehensive review of the MPF system; if not, of the reasons for that; and
(3) whether it will consider increasing the investment options available for MPF contributors, including time deposits with banks, exchange traded funds linked to HSI (e.g. the Tracker Fund of Hong Kong), funds which truly guarantee capital preservation, funds operating on a "no profit, no fee" basis, and entrusting the contributions to the Exchange Fund for investment; if not, of the reasons for that?
Reply:
President,
Since the inception of the system in December 2000, the net annualised internal rate of return of Mandatory Provident Fund (MPF) as at the end of January 2023 is 2.9 per cent, higher than the inflation rate of 1.8 per cent over the same period. Meanwhile, the fund expense ratio of the MPF System (representing the overall cost level) has dropped from 2.1 per cent in 2007 to 1.33 per cent in 2022. With volatile market conditions in recent years and given a slump in both the equities and bond markets in 2022, the net annualised return of MPF ranged between the price indices of major stocks markets and the global bond market in 2022. Understandably, the investment performance of the MPF System has become an issue of concern for members of the public. The Government together with the Mandatory Provident Fund Schemes Authority (MPFA) will continue to enhance the operation of the MPF System.
Having consulted the Labour and Welfare Bureau (LWB) and the MPFA, my replies to the various parts of the question are as follows:
(1) The account records of individual MPF scheme members are maintained by individual MPF trustees. When a scheme member settles their accrued benefits and transfers from one scheme to another for various reasons (e.g. change of employment, consolidation of personal accounts, transfer through Employee Choice Arrangement), trustee of the new scheme will not have the previous contribution records of the scheme member concerned. As a result, MPF trustees are not able to provide to the MPFA information on the profits and losses recorded on the fully-withdrawn MPF accounts after deducting the accrued contributions from the final balance.
(2) The Government and the MPFA have been reviewing the MPF System in light of the societal and economic changes, and introduced various measures to generate greater value for the retirement asset of the working population. Over the past 10 years, for example, we have implemented the Employee Choice Arrangement (commonly known as "MPF Semi-portability") in 2012, introduced the fee-controlled Default Investment Strategy (DIS) in 2017 and employees' tax-deductible voluntary contributions in 2019, and enhanced investment rules in 2020 and 2022 to facilitate MPF funds' investment in Mainland A-shares and sovereign bonds. These constant reviews and reform measures helped promote market competition, drive down fees, improve MPF investment choices and returns, and strengthen the scheme members' selection and management of their MPF.
As one of the important reform initiatives, we are taking forward in full steam the development of the eMPF Platform, which will standardise, streamline and automate the administrative processes of MPF schemes. The eMPF Platform is key not only with respect to enhancing operational efficiency, lowering fees and reshaping the MPF ecosystem, but provision of a centralised administration system and one-stop electronic platform that is currently lacking in the MPF System. Not only will the eMPF Platform enable more effective MPF management by scheme members, it will also provide the necessary infrastructure and data analytics ability to foster the implementation of "Full Portability" and other more innovative functionalities, paving way for further reform initiatives.
At the same time, the LWB has pledged to abolish the "offsetting" arrangement no later than 2025, and plan to pay MPF contributions for employees and self-employed persons who are exempted from making MPF contributions due to low income upon the full implementation of the eMPF Platform. These will help enhance the retirement protection of the MPF System. The 2023-24 Budget also proposes to increase the tax deduction for voluntary MPF contributions made by employers for their employees aged 65 or above, which will incentivise employers to continue hiring aged workers while increasing the retirement savings of the silver-haired population.
Enhancement of the MPF System is an on-going process. The Government will continue to work with the MPFA to conduct reviews and take timely actions, with a view to increasing investment choices and returns, lowering fees and improving adequacy and members' protection of the MPF System, thereby strengthening the role of MPF as the second and third pillars of the multi-pillar retirement protection framework.
(3) At present, the MPF System offers over 400 constituent funds for scheme members to choose from based on their investment objectives and risk tolerance. These include the MPF funds provided by some MPF schemes that invest wholly in Hang Seng Index Tracking ETFs (e.g. Tracker Fund) and principal guaranteed MPF funds.
We will critically examine the feasibility of different investment options for MPF having regard to scheme members' interest and investment risks. To this end, the Government has instructed the Hong Kong Monetary Authority and the MPFA to look into proposals to further address society's aspirations for MPF funds that could offer stable returns at low fees. As an initial step, the Government plans to earmark a certain proportion of the future issuances of Government institutional green bonds and infrastructure bonds for priority investment by MPF funds. We will keep an open mind, review the permissible investments of MPF in light of market development and scheme members' aspirations, and offer better MPF investment options. I believe that the full commissioning of the eMPF Platform could provide certain investment options with centralised supporting facilities to maximise cost effectiveness.
Thank you, President.
Ends/Wednesday, March 22, 2023
Issued at HKT 14:25
Issued at HKT 14:25
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