Money Moves

Tipping the balance

by Martin Williams

Member education key to maximising MPF potential

Luzia Hung, general manager and head of employee benefits
HSBC Insurance (Asia-Pacific) Holdings Limited
Photo: Nolly Leung

Hong Kong's Mandatory Provident Fund (MPF) scheme is now seven years old and the average employee currently holds more than HK$100,000 in their MPF accounts. Luzia Hung, general manager and head of employee benefits, HSBC Insurance (Asia-Pacific) Holdings Limited, believes however that many people are not maximising their MPF's potential and that education is the key to securing enhanced benefits from the scheme.

Ms Hung underlines the fact that in Hong Kong today, the number of preserved MPF accounts supercedes the number of active ones. Preserved accounts hold accrued benefits from previous employers and can be closed by an employee with the balance transferred to the new MPF fund chosen by an individual's new employer. Alternatively, preserved funds can be left to grow or new funds can be invested directly from a member's pocket. Whichever option an individual chooses, in essence he or she is in complete control of the investment choices linked to a preserved fund.

"Though MPF members have no choice regarding their new MPF company with a new employer, they have a lot of options with the assets they have already accrued," explains Ms Hung. "With a preserved account, people can move such accrued assets anywhere."

Scheme of things

Despite this freedom of choice, several employees in Hong Kong still remain reluctant to take the driving seat with their MPF accounts. In the absence of any fund allocation instructions to MPF providers, members' money is placed in conservative capital preservation funds. Ms Hung notes that in 2001, one in three HSBC MPF members gave no instructions to them. Even today, around one in four HSBC MPF customers still give no MPF instructions as to fund allocation.

A Mandatory Provident Fund study revealed that from 2001 to 2005, members who chose to invest in exceedingly low return capital preservation funds received an average of 0.86 per cent return per year. In contrast, clients who opted for any other funds received an average of 6.99 per cent annual return. "The more the industry does to make people aware of the difference the better," says Ms Hung.

Ms Hung is aware however, that with 19 approved trustees and an array of different schemes, choosing an MPF provider can seem a daunting task. Employees' and employers' criteria differ too, with the latter placing more emphasis on ease of administration. In essence, the best scheme for an employer may not be the most lucrative for an employee.

For people looking for a provider, Ms Hung advises checking the strength of its assets first. A firm financial base helps a company weather economic storms. Suitability and transparency of services on offer must also be considered thoroughly. HSBC enables MPF account members to check information by phone, through the internet and at ATMs. "We're the only provider offering MPF information through ATMs," explains Ms Hung.

In good hands

HSBC MPF currently has in place three different schemes: SuperTrust, SuperTrust Plus, and the recently introduced SimpleChoice. SuperTrust is a standardised MPF scheme, offering a capital preservation fund, a guaranteed fund, a balanced fund, a growth fund and a Hang Seng tracking fund. As its name suggests, SuperTrust Plus is an expanded version of SuperTrust, with five extra funds geared towards people seeking more control over their investments.

SimpleChoice, by contrast, is for people who prefer to leave MPF allocation choices to the experts. Unique among MPF schemes, it has default instructions, which ensure that even if clients fail to specify their options, they are automatically allocated funds by HSBC MPF ensuring a higher gain than from a typical capital preservation fund. This specific scheme features three funds: capital preservation, global bond and global equity. Pre-determined asset allocations are based on age bands, with 95 per cent of member saving placed in equities and the remaining in bonds for people under 30. Investment risks increases with age, for instance, 70 per cent of assets for people over 60 are placed in bonds, 10 per cent in equities, and the rest in capital preservation.

With SimpleChoice and the two SuperTrust funds, HSBC advisors can help individuals gauge their risk appetite. A questionnaire helps with this, leading to scores indicating whether a member should follow an aggressive or relatively conservative risk strategy.

Though SimpleChoice does indeed appear simple, Ms Hung says, "It was not easy setting up the new trust. There was a lot of thought and planning, with research into our customers' needs. There were several technical issues, too. We needed to set up a master trust, and receive approval from the MPFA and the SFC. Also, as members age, asset allocations will automatically change and we need to notify members and further assess their needs."

Nevertheless, Ms Hung is clearly enthused by the new scheme. "I have a passion in what I do," she says. "This is a long-term partnership with our members. When they choose a plan with us, we want to give them exactly what they need."

Taken from Career Times 29 February 2008, p. D2
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