capitalize on mpf in the quest for talents

Capitalize on MPF in the Quest for Talents

Cheng Yan-cheeChief Corporate Affairs Officer and Executive Director

Mandatory Provident Fund Schemes Authority7 September 2018

Contents

2

Problem in Staff Recruitment and Retention

MPF as a Relevant Tool

Proposed Changes to Make MPF More Relevant

Attract Talents with MPF Voluntary Contribution

Attract Talents by Giving Support to MPF Selection & Management

1

2

3

4

5

Capitalize on Electronic MPF Administration

6

Problem in Staff Recruitment and Retention

4

Are you an Employer of Choice?

What benefits package do you offer?

Questions for Employers

5

Hong Kong’s Declining Unemployment Rate over the Past 10 years

%

Employers are facing a challenging environment to compete for talents

Keen Competition for Talents

6

Recruitment and retention of high-quality staff is essential

Offering better employee benefits gives you a competitive

edge on recruiting / retaining good staff

A better benefits package, including retirement benefits, can

improve retention and cut down on costs of turnover in the

long term, such as

• cost of the recruitment process

• onboarding & training

• lost productivity and mistakes

• lost revenue and broken relationships

• morale

Good Benefits Package vs Turnover Cost

MPF as a Relevant Tool

8

The MPF System is helping the Hong Kong working population to accumulate retirement savings

MPF - Performance

MPF Benefits and Contributions(1.12.2000 – 30.6.2018)

9

0

100

200

300

400

500

600

700

800

900

Accrued Benefits Total Net Contributions Received

HK

$ B

illio

n

852

600.62

Contributions(net of amount

withdrawn)$600.62 billion

30%

Investment Returns(net of fees & charges)

$251.38 billion

Annualized rate of return since inception (net of fees & charges)

(1.12.2000 – 30.6.2018)

MPF Investment Returns

10

-4.9%-10.7%

22.0%

4.7%12.3% 12.4%

4.5%

-25.9%

30.1%8.7%

-5.6%

6.4% 4.2% 6.4%

-8.2%

9.7%14.9%

-1.9%*

1.12.2000-

31.3.2002

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19

MPF Investment Returns by Fund Type

Fund type

Dec 2000 to Jun 2018

Annualizedreturn

Cumulativereturn

Equity Fund 5.2% 141.9%

Mixed Assets Fund 4.4% 112.8%

Bond Fund 2.6% 56.4%

Guaranteed Fund 1.2% 22.4%

Money Market Fund -Other than MPF Conservative Fund

0.6% 10.3%

Money Market Fund -MPF Conservative Fund

0.7% 13.2%

11

Proposed Changes to Make MPF More Relevant

Maximum Relevant Income Level

Tax Concession for MPF Voluntary Contribution

Review of Minimum and Maximum

Relevant Income Levels

14

MPFA is required by law to regularly review the Min &

Max RI levels

Completed the current review and has submitted the

report to the Government for consideration

Minimum and Maximum Relevant Income (Min & Max RI) Levels

15

According to the statutory adjustment factor:

Min RI should be adjusted from

$7,100 to $8,250 (?) (half of Median Earning)

Max RI should be adjusted from

$30,000 to $48,000 (?) (90th Percentile Earning)

Proposed Min & Max RI Levels

3,580,000

2,237,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Investment Horizon / Year

Max RI at $48,000

Max RI at $30,000

$

16

Projection of Accrued Benefits

Estimated Final Accrued Benefits of Scheme Members

An increase in Max RI would improve significantly a scheme member’s accrued benefits over the long term

Key Assumptions• Annualized Investment Return = 4.4% (i.e.: Annualized IRR of MPF System as at July 2018 since inception)• Assuming the member contributes at Max RI for 30 years from 35 years of age, while the Max RI is not further adjusted• Current MPF account balance = $0

Increase: $1,343,000

(60%)

(?)

17

For MPF to effectively perform its retirement protectionfunction, adjustment over time to reflect incomedistribution of workforce is necessary

This will assist employees to accumulate enough MPF forbasic retirement protection

Labour unions welcome the proposal

Employer’s Support

Employers’ support for increasing Max RI will keep MPF as a relevant tool for

staff recruitment and retention

Proposed Tax Concession for MPF Voluntary Contribution

19

Mandatory Contribution(MC)

Voluntary Contribution(VC)

Tax Deductible Voluntary Contribution(TVC)

Existing tax concession limit of $18,000

Proposed tax concession limit of $36,000

No tax concession

The Proposal

20

Voluntary Contribution (VC) by Employees

2017: 83,000 or 3.2% of all participating employees made $1,373 million

to their MPF schemes as VC

81800

82000

82200

82400

82600

82800

83000

83200

2015 2017

Number of Employees Paid Voluntary Contribution for Themselves

21

Tax concession will encourage moreemployees to make more contribution forretirement planning in addition to thecurrent mandatory contribution

Employers are encouraged to provide VC tomatch the employee's TVC as part of theirbenefits package

Employers Can Boost the Effect of TVC

Attract Talents with MPF Voluntary Contribution

23

More and more employers and employees see the valuein making MPF VC to strengthen retirement benefits

Some employers make VC for their employees (ER-VC)on top of mandatory contributions (MC)

Some employees also make VC through their employers(EE-VC), sometimes as a prerequisite for employers’matching contribution

Upward Trend of Voluntary Contribution

24

0

2000

4000

6000

8000

10000

12000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Total VC Received

Total VC

Received for

Employees

Upward Trend of Voluntary Contribution

The amount of VC has grown substantially over the years

MPF Voluntary Contribution

25

Upward Trend of Voluntary Contribution

In 2017, a total of 15 900 employers (or 5.6% of all participating employers) made ER-VC for 328 500 employees (or 12.5% of all participating employees) with an aggregate amount of $8,894 million

15740

15760

15780

15800

15820

15840

15860

15880

15900

15920

2015 2017

Number of Employers Paid Voluntary Contribution for Employees

250000

260000

270000

280000

290000

300000

310000

320000

330000

340000

2015 2017

Number of Employees Received Voluntary Contribution from Employers

Average amount of ER-VC per employee in 2017was $27,100

Employers that provide VC improve significantlyan employee’s accrued benefits over the longterm

26

Employers can EnhanceRetirement Protection for Employees

4,947,000

3,921,000

3,263,000

2,237,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Investment Horizon / Year

MC + ER-VC + EE-VC

MC + ER-VC

MC + EE-VC

MC

$

27

Increase: $2,710,000 (121%)

Increase: $1,684,000 (75%)

Increase: $1,026,000

(46%)

Key Assumptions / Parameters • Annualized Investment Return = 4.4% (i.e.: Annualized IRR of MPF System as at July 2018 since inception)• Assuming the member contributes at Max RI ($30,000) for 30 years from 35 years of age, while the Max RI is not further adjusted• Current MPF account balance = $0• Average Amount of EE-VCs Per Employee in 2017 = $16,500• Average Amount of ER-VCs Per Employee in 2017 = $27,100• All ER-VC are vested fully and immediately in the employee

Projection of Accrued Benefits

Join the 15 900 employers currently providing ER-VC to employees

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Be an Employer of Choice

Attract Talents by Giving Support to MPF Selection and Management

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Employers can give support to their employees in MPF management through:

Organizing MPF talks for employees

Providing employees with information about their MPF scheme(s)

Disseminating the latest information on the MPF System to employees

Assisting employees in consolidating MPF accounts

Assisting employees in utilizing Employee Choice Arrangement (ECA)

Offering more than one MPF scheme for employees to choose from

Choosing MPF schemes on the basis of “value for money”

Examples of What Employers Can Do

31

Employers are responsible for selecting suitable

trustee(s) and scheme(s) based on the needs of the

company and its employees

Employees expect MPF schemes and trustees to

deliver “value for money” for their retirement savings

Employers play a vital role in ensuring value for

money at scheme level so as to enhance the MPF

benefits for employees

Value for Money

32

Employers should consider the following factors whenevaluating trustees / schemes: Range and quality of the services Choices of schemes and funds Fees of funds Performances of schemes and funds

Resources on MPFA’s website to help employerscompare different trustees and schemes Trustee Service Comparative Platform Fund Performance Platform

Resources to Help Employers

33

Fund Performance Platform

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Compare MPF schemes by comparing the funds they offer

Using the filtering function, employers can view and compare the fees, risk

levels, returns and fund size of selected funds from different MPF

schemes of their choice in a single table

Fund Information Table

35

Helps you to review the performance of selected funds for long-term periods (5 / 10

years) in the form of chart

Here are the 5-year and 10-year low-to-high annualized returns of the selected funds

by fund type or fund category (Global Bond Fund of 3 different schemes are chose)

Each star represents one fund

Move your mouse cursor on the colour-coded star to view its return

If the star is paced to the left, it means the fund performs relative poorly

Performance Chart

36

Allows you to compare the key features of selected funds in the familiar

table format commonly used to compare products

You can select funds of different MPF schemes for comparison

Showing their returns, fees and risk levels for easy comparison

My Selection

Capitalize on Electronic MPF Administration

38

Payment of MPF contributions by electronic means insteadof paper cheque will save the delivery time and avoid disputeon payment date

Preparing and submitting remittance statement by e-toolswill reduce manual processing which will help ensureaccuracy and avoid default contribution caused bycalculation errors

Avoid paying surcharge on default contributions

Avoid default contribution causing grievance among staff

Reduce paper-based transactions, lower the operating costsof MPF schemes

It is also environmental friendly

Benefits of Using Digital Means

39

Trustees are providing different e-services to facilitate employers / HR practitioners to handle MPF-related matters

Trustees are prepared to offer employers / HR practitioners assistance in using their e-services

Seek Assistance from Trustees

Upcoming

MPF Scheme Administration

Reform

MPF Scheme Administration

32 MPF schemes privately managed by 14 trustees

9.6 million MPF accounts

• 4 million contribution accounts and 5.6 million personal accounts

Administration cost and expenses accounted for 43% of FER -2012 Study

2 reasons for high scheme administration costs

• 30 million transactions yearly, 2/3 involve manual/paper

• Not enough co-operation to resolve industry-wide problems

41

MPF Scheme Administration

Using digital means to handle MPF-related matters is the way to go

42

eMPFthe upcoming reform

Objectives

eMPF

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1Improve

accuracy, reliability and

efficiency

2

43

Lower costs and

fees

Enhance user experience

Enable future reform

eMPF

Proposed Centralized Infrastructure

One-stop access

Standardization, streamlining and automation

Central hub for processing employers’ and employees’ instructions or transactions to trustees

Enable “Full Portability”

44

Conclusion

To capitalize on MPF for enhancing employee benefits to

help in the quest for talents

45

End