- Ratings for Fees and Performance Highlight Lack of Retirement Planning Education
- Huge Gap between Average Contribution by Hong Kongers and What They Need to Save for Retirement
Hong Kong, 17 January 2017
An ageing population continues to raise public concerns over retirement planning and the adequacy of government retirement solutions available. With an average lifespan increase from 80.9 years in 2000 to 84 in 2014, Hong Kong tops The World Bank’s life expectancy chart.
Mercer, a global consulting leader in advancing health, wealth and career, and a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), today announced the findings of its 2016 Hong Kong Defined Contribution Scheme Survey. The survey demonstrates that there is a growing number of scheme subscribers who think their providers are not doing enough.
Growing dissatisfaction with MPF providers: fees, performances and communications
In 2013, a similar survey by Mercer covering Greater China revealed that 23% of companies were not satisfied with their MPF providers. In 2016, however, the dissatisfaction rate went up to 33%. Fees, investment performance and employee communications are the three key areas with which employers are least satisfied (figure 1). Companies also highlighted that retirement planning is an important area requiring change, to deliver a better and more engaging offering to employees, followed by increased tax incentives, better online platforms and a wider range of investment funds.
Figure 1 – performance of MPF providers – current ratings
“2016 marks the 16th year since the implementation of MPF. All MPF schemes are required to offer a Default Investment Strategy (DIS) starting from 1 April 2017, which showcases the importance of modifying and upgrading our system to address the evolving needs of Hong Kong’s ageing population,” said Billy Wong, Wealth Business Leader of Hong Kong, China and Korea at Mercer. “Despite the fee drops over the last few years , satisfaction has not gone up. This shows that fee reduction alone may be insufficient to bring up members’ confidence and the fact that neither high nor low fees have any correlation with better investment returns.”
Getting ready for the new policy
The Default Investment Strategy (DIS), offered in every MPF scheme in Hong Kong starting April 2017, will have three features: globally diversified investment, automatic reduction of investment risk as scheme members approach retirement age, and fee caps, aiming to help address concerns in fund selection, better retirement protection and better managed employees’ retirement savings.
“The DIS is one of the government’s initiatives in face of the city’s ageing population to advance its policies with evolving public needs. At the same time, it makes the scheme options market more complex. Companies need to keep abreast of these important changes and announcements that will have significant impact on their employees’ savings in the long run, and plan ahead in terms of employee communications and retirement education to help employees select the appropriate schemes out of the many available,” said Billy Wong.
“Our survey has shown that reviewing scheme benefits against market levels, employee investment and retirement education, and investment options are among the top three areas that companies are likely to review over the next three years (Figure 2). Employers may find themselves lagging behind competitors if they are slow to action,” added Wong.
Figure 2 – areas likely to be reviewed over the next three years
Companies also need to assist employees with retirement education and planning
However, when asked how often they communicated with staff regarding the retirement plans, 59% said only if there was a special need and 18% said never, suggesting that employers also are neglecting any responsibility for retirement planning education.
The survey finds that around 90% of companies use MPF while the remaining use ORSO as their primary government sanctioned retirement savings vehicle. Among the MPF corporate users, over 50% of them provide top-up benefits within MPF in addition to the mandatory benefit level – either a fixed contribution rate (57% of respondents) or a step rate linked to service (43% of respondents). On average, however, the survey finds that the combined contribution to MPF by both employee and employer is 12% of an employee’s salary, far below the “ideal” level.
“Based on Mercer’s own research and many other studies, the people in Hong Kong should contribute between 30% and 45% of their salary -- three times as much as the average -- to retirement savings plans in order to achieve a reasonably comfortable retirement life,” said Wong
“There is a significant gap between what Hong Kongers are doing and what they actually need for their retirement. Employees should be encouraged to make voluntary contributions into their pension schemes, as well as make their own investment and/or saving plans. On the other hand, the MPF Authority, MPF providers and brokers should also betake a more active role in educating employees about retirement planning. From our point of view, the core reason for the gap is insufficient education about retirement planning. The consequences of this could be devastating to both the individuals and the society as a whole,” added Wong.
1. Mercer. 2013 Greater China Retirement Savings Survey Hong Kong Results
2. The average Fund Expense Ratio (FER) in the MPF market decreased from 1.72% in 2013 to 1.57% in 2016 http://www.mpfa.org.hk/eng/information_centre/press_releases/4971_record.jsp and http://www.mpfa.org.hk/eng/main/speeches/files/2016-09-28-PPT-e-ED(S).pdf, slide 9
3. Based on a paper written by Prof. Chan Wai Sum of the Chinese University of Hong Kong “The First Mandated Social Security Pension Scheme in Hong Kong,” Benefits: A Journal of Social Security Research, Policy and Practice, Issue 32 (September/October 2001): and internal estimations done by Mercer
Note to editors
The Mercer 2016 Hong Kong Defined Contribution Scheme Survey covers a broad spectrum of industries with over 50,000 individual MPF members. The survey was designed to look at areas including scheme design, investment management, provider services and fees, and scheme governance of defined contribution schemes available in Hong Kong, namely the Mandatory Provident Fund and Occupational Retirement Schemes Ordinance schemes.
Mercer is a global consulting leader in health, wealth and careers. Mercer helps clients around the world advance the health, wealth and performance of their most vital asset – their people. Mercer’s more than 20,000 employees are based in more than 40 countries and the firm operates in over 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy and people. With 57,000 employees worldwide and annual revenue exceeding $13 billion, Marsh & McLennan Companies is also the parent company of Marsh, a leader in insurance broking and risk management; Guy Carpenter, a leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @MercerAMEA