A standard low-cost default option and alternatives to lump-sum payouts are among the steps the Hong Kong Mandatory Provident Fund Schemes Authority is considering to improve outcomes for MPF participants, according to authority Chairwoman Anna Wu Hung Yuk.
In a June 27 speech at a global retirement savings conference in Hong Kong, hosted by ICI Global, Ms. Wu said the MPF — a privately run, defined contribution-based system launched in 2000 — “must continue to evolve.”
Noting a litany of criticisms, from high fees, to incomplete coverage, to less-than-stellar investment returns, Ms. Wu said the MPF, with HK$455 billion (US$58.7 billion) as of March 31, was never meant to be the sole pillar of support for Hong Kong citizens in retirement. And she noted progress made since the system's launch, such as increasing coverage to 84% of Hong Kong employees from 30% in 2000.
Still, Ms. Wu acknowledged criticisms leveled at the system have some merit, and the issues raised “need to be tackled.”
The authority is looking at whether and how a standard low-cost default option can be introduced in an effort to “minimize the scope for extremely negative outcomes” for plan participants, with a paper on that subject due by the end of this year, Ms. Wu said.
In addition, the authority is looking at changes in the current system of lump-sum payouts to participants at age 65, Ms. Wu said. Options are being considered that would allow those payouts to “stay within the system,” either as an annuity or to be drawn in installments, she said.
Asked at the conference whether Hong Kong could follow Singapore's S$232 million (US$183 million) Central Provident Fund in mandating the allocation of a portion of CPF participants' savings to a government-run annuities program, Darren McShane, executive director of regulation and policy with the MPF Schemes Authority, said a mandatory annuity scheme wouldn't work in Hong Kong.