Mandatory Provident Fund in Hong Kong

Presented by group 2

Year Percentage of elderly age

1981 6.6 %

2001 11.2%

2031 24%

年齡組別

1991 1996 2001

數目 佔總計的百分比

數目 佔總計的百分比

數目 佔總計的百分比

0 - 14

1 151 916

20.9 1 151 038

18.5 1 109 417

16.5

15 - 24

839 841

15.2 869 511

14 920 445

13.7

25 - 34

1 178 288

21.4 1 188 424

19.1 1 108 529

16.5

35 - 44

891 032

16.1 1 178 522

19 1 360 487

20.3

45 - 54

487 658

8.8 683 569

11 960 417

14.3

55 - 64

491 506

8.9 516 937

8.3 502 042

7.5

65+ 482 040

8.7 629 555

10.1 747 052

11.2

總計 5 522 281

100 6 217 556

100 6 708 389

100

Source http://www.censtatd.gov.hk/major_projects/2001_population_census/main_tables/ population_by_age_group_1991_1996_and_2001/index_tc.jsp

Three-pillar approach

-Public

-Personal

-Mandatory

-Voluntary

Old-Age Crisis

Before MPF, only 1/3 workforce had retirement protection

Implement of MPF, close to 90% workforce enjoy retirement protection

Implemented on 1 Dec 2000

Coverage

Between 18-65 are required

Includes full-time and part-time (employed 60 days or more under a contract )

Self-employed workers

exemptions• Grant or subsidized school teachers• domestic employees• self-employed hawkers• people which covered by statuary pension or

provident fund such as civil servant• People who entered Hong Kong less than 13

months or covered by overseas retirement schemes • employees from the European Union Office of

European Commission in Hong Kong

the contribution amount is compulsory equal to 5% + 5% of salary. :

• Contribution range– >=$5000 , <=20000

the contribution will be fully paid and including the return of their contribution.

Contribution:

Withdrawal

Special circumstances1. Death2. Early retirement reaching age 60 3. Permanent Departure from HK4. Total incapacitation5. A small balance account in an MPF scheme

The Protection of MPF

• Stringent approval and registration criteria

• Trust Arrangement

• Professional indemnity Insurance

• Compensation Fund

Guaranteed Fund

HSBC

Guaranteed Fund

• Launch date: 01.12.2000

• Fund Size: HK$5,049.39(Since 30.06.2006)

• Investment Time Frame: Short to medium term

• Fund Type: Guaranteed fund

Guaranteed Fund

Objective:

• To achieve long-term growth with low volatility while preserving underlying capital.

Guaranteed Fund

Typical Asset Allocation:

• Equities 0-50%

• Bonds 20-100%

• Cash 0-80%

Guaranteed Fund

• Guaranteed Interest Rate:

• 1 July 2005 to 30 June 2006 0.25% p.a

• 1 July 2006 to 30 June 2007 0.25% p.a.

Guaranteed Fund Portfolio allocation

USD bonds8%

Cash & deposits16%

Hong Kong equities14%

Singapore equities0%

Hong Kong bonds62%

Balanced Fund

HSBC

Balanced Fund

Objective:

• To achieve medium-high capital growth with medium volatility through a pooled investment fund that indirectly invests in global bonds and equities with a heavier weighting in equities.

Balanced Fund

• Launch date: 01.12.2000

• Fund Size: HK$8,259.57(Since 31.07.2006)

• Investment Time Frame: Medium term

• Fund Type: Mixed Assets fund[Global]

Balanced Fund

Typical Asset Allocation:

• Equities 55-85%

• Bonds and cash 15-45%

Balanced Fund Portfolio allocation

Hong Kong equities22%

Japanese equities12%

Hong Kong bonds1%

USD bonds5%

Cash & deposits4%

American equities14%

Asia equities6%

Australian equities4%

European equities14%

World bond ex US18%

Growth Fund

HSBC

Growth Fund

• Launch date: 01.12.2000

• Fund Size: HK$8,669.17(Since 30.06.2006)

• Investment Time Frame: Medium term

• Fund Type: Mixed Assets Fund [Global]

Growth FundObjective:

• To achieve investment returns which maximize long-term capital growth potential with medium-high volatility. The fund invests in a pooled investment fund that indirectly invests in global equities, with an emphasis on Asian markets.

Growth Fund

Typical Asset Allocation:

• Equities 70-100%

• Bonds and cash 0-30%

Growth Fund Portfolio allocation

World bond ex US6%

Japanese equities15%

Hong Kong equities29%

Cash & deposits2%

American equities17%

Asia equities7%

Australian equities5%

European equities19%

Guaranteed Portfolio

AIA

Guaranteed Portfolio• Launch date: 01.12.2000

• Fund Size: HK$1,279.36(Since 31.07.2006)

• Investment Time Frame: Short to medium term

• Fund Type: Guaranteed fund

Guaranteed Portfolio

Objective:

• To minimize capital risk in Hong Kong dollar terms.

• To achieve a stable, consistent and predictable rate of return.

Guaranteed Portfolio Asset Allocation

Hong KongDollars Bond

92%

Net Liquidity8%

Balanced Fund

AIA

Balanced Fund

• Launch date: 01.12.2000

• Fund Size: HK$1,207.63(Since 31.07.2006)

• Investment Time Frame: Medium term

• Fund Type: Mixed Assets Fund

Balanced Fund

Objective:

• To maximize long-term capital appreciation in Hong Kong dollars terms within moderate risk parameters.

• To outperform Hong Kong price inflation over the long term.

Balanced Portfolio Asset Allocation

Europe Equities10%

Hong Kong Equities14%

Japanese Equities8%

United States Equities7%

Other Asia Equities9%

Other Bonds40%

Net Liquidity5%

Hong Kong DollarBonds7%

Growth Fund

AIA

Growth Fund

• Launch date: 01.12.2000

• Fund Size: HK$2,981.74(Since 31.07.2006)

• Investment Time Frame: Medium to long term

• Fund Type: Mixed Assets Fund

Growth Fund

Objective:

• To maximize long-term capital appreciation in Hong Kong dollar terms.

• To outperform Hong Kong salary inflation over the long term.

Growth Portfolio Asset Allocation

European Equities18%

Hong Kong Equities27%

Japanese Equities13%

United States Equities15%

Other Asia equities14%

Hong Kong DollarBonds2%

Other Bonds10%

Net Liquidity1%

Guaranteed, balanced and growth funds

• the portfolio of the funds can be different even their name are the same, so called guaranteed fund.

 

HSBCAIA

Guaranteed Fund

Period return %

AIA HSBC

00-01 3.77 -2.4

01-02 2.08 -0.41

02-03 1.5 0.21

03-04 1.5 0.21

04-05 1.92 -0.41

Annualized rate % 2006

AIA HSBC

1 year 2.00 2.26

5 year 1.83 0.37

Since launch 2.22 -0.10

Last year 2005 2.00 -1.73

Source from HSBC and AIA fund fact sheet Sep, 3quarter 2006

 

• Due to the difference in allocation, their rate of return will also be affected

• not only come from the rising interest rate, but also from the stock market fluctuation

Guaranteed Fund

Balanced fund

• This diversifies some risks from the volatility of stock market when it in a climate of contrasting economic currents, cooling growth and highly inflation.

• we have to aware that equity investment is much risky than the bonds. The investors of HSBC have to bear the extra 35% risky than AIA ’s investors.

 AIA

HSBC

• AIA generated 1.83% above average, but HSBC is 0.37.

• AIA WIN

Growth fund

 

• Because of their similarity, we are able to compare which fund manager are performed better.

• the past performance of them can be very different although they have a similar allocation percentage.

Period return over 2000-2006

•HSBC tends to be fluctuating over time to time, especially in the early year 2001-2003.

•This implied that HSBC ‘s fund portfolio poorly took advantage of diversification

Return of HSBC vs AIA

-30

-20

-10

0

10

20

30

00-01 01-02 02-03 03-04 04-05 05-06

Period

%

HSBC

AIA

Which funds should I choose?

• whichever funds we are chosen is depended on your the degree of risk you can bear.

• The simple way to test how much you can bear is 100 minus your current age

• it is employers to determine which MPF service provider should be chosen, not the employee.

Source from HSBC and AIA fund fact sheet Sep, 3quarter 2006

The Effectiveness of the MPF

1) The return of MPF is uncertain.

• a) 跌市累強積金上月蝕2.2%  ( 太陽報  2006-06-12

19:00:25)

“【太陽】股市逆轉，股民遭殃之餘，投資股票基金比重大的強積金（MPF）亦受無妄之災 ..”

• b) 強積金連續兩月虧損  (太陽 ) 07月  13日 星期四  03:00AM “【太陽報專訊】強積金 (相關新聞  - 網站)（MPF）連續兩個月錄得虧蝕 , 六月份強積金平均回報為負 0.3%.....”

http://hk.news.yahoo.com/060612/197/1opgx.html

1) The return of MPF is uncertain.

• Investment on bonds can have stable but less return.

• The return of investing on shares in MPF’s portfolio which is highly affected by the stock market.

• Different distribution of investment in different portfolio can give different return to the contributors.

• the return is monitored by the personals factors. So, the return is uncertain.

HSBC

Hotline2238 0088

Press 1Press 2

2) Insufficient return for low income people.

Inflation rate 2%

Returned rate 3%

Year to Start 25 years old

Contribution per month

$1000(employers’) + $1000(employees’)

Retired Age 65 years old

Assumed saving $0

Return $1,896,000

Year to enjoy return

15 years (until 80 years old)

Return per month $5000

reach ceiling $2000 contribution per monthOnly target for high income people

At 65 years old retired.

Only used for 15 years

Every month $5000

• For the Hong Kong Census and Statistics Department on No. of domestic households by monthly household income and household size released at 23rd November, 2006, it state out that about 46% of employees have average salary $7340-$11560 per month.

Example:

Refer to Excel

insufficient return

• Real lifethe inflation factor will decrease our future income.

insufficient to cover most of the employees in Hong Kong to provide them a stable retiring life.

3) It has less benefit to the short time contributor.

4) The improvement of scheme hasn’t widely made.

• Future Trend-• “強積金供款入息上限，擬由２萬增至３萬元  (經濟通 ) 08月  28日 星期一  08:31AM

• 積金局 (相關新聞  - 網站 )現正研究，擬把強積金 (相關新聞  - 網站 )（ＭＰＦ）供款入息上限由現行的２萬元增至３萬元，此舉將令僱員與僱主每月最高供款，由現時的各供１０００元增至１５００元，即僱主一年最多為員工額外供款６０００元，市料有逾７５萬名僱員受影響，當中牽連最大者是金融、會計等專業人士。積金局諮詢委員會主席周永新 (相關新聞  - 網站 )教授透露，擬向政府建議把僱員的入息供款上限由２萬元增至３萬元，惟當局會否接納，相信最終是政治決定。而積金局發言人接受查詢時拒就此作回應。《香港經濟日報》 

http://hk.news.yahoo.com/060828/74/1s12l.html

• enlarges the ceiling

• But only targets the professionals with high income people.

• But how about the low class? It seems to show the government’s improvement is incompletes.

Recommendation

Method 1:

contribution %

– By law

– Voluntary

beneficial to more people

Method 2:

• Supplementary plan

– Aggressive

i.e. investment• Stock

• Foreign currencies

• Funds

Method 2: (Cont’d)

• Supplementary plan– Conservative

i.e. saving• Time deposit

• Gold coins

• Gov. bonds/ bank shares

• Annuity

Member List:

• Cheang Wai Sun, Alexander

• Cheng Fu, Kelvin

• Cheng Hoi Ling, Sue

• Lam Tai Chuen, Ivan

• Chan Wai Sze, Phyllis