Session T07

1. Financial Planning for Retirement
(Questions 3.1 – 3.14)

2. Question 1:
What is the Mandatory Provident Fund,
when was it launched, and what pension
schemes were in place before the launch
of the MPF?

3. Mandatory Provident Fund (MPF)
 Compulsory retirement scheme in Hong Kong
 All employers in Hong Kong have to join
 Implemented on 1st December 2000
 Both employers and employees contribute to the fund
 If your monthly salary is above $6500, the current
contribution rate is 5% of salary, with a cap of $1000.
 Employer will choose a MPF provider.
 Employee can choose a fund offered by the MPF
provider.
 Employee will receive the benefits upon retirement.

4. Mandatory Provident Fund (MPF)
(continued)
Before the implementation of MPF:
 Only some (not all) companies offer retirement benefits to
their employees
 Different employers have different retirement schemes.
 It is governed under ORSO. (Occupational Retirement
Schemes Ordinance)
 Source: Hong Kong Fact Sheet: MPF Sheet
 http://www.gov.hk/en/about/abouthk/factsheets/docs/mp
f.pfd

5. Q3.2:Who supervises the MPF
industry?

6. The Mandatory Provident Fund Schemes
Authority (MPFA)
 Ensure stakeholders’ compliance with the Mandatory
Provident Fund Schemes
 Approve and supervise approved trustees
 Approve and supervise MPF funds/ investment products
 Register MPF schemes
 Register and supervise MPF intermediaries
 Register and supervise ORSO schemes
Source: http://www.e-crest.com:8080/hkrsa/public_docs/2007/Handout/1103MPFAHYu.pdf

7. Q3.3 What section(s) of the working population
is/are required to contribute to the MPF?
• The Mandatory Provident Fund (MPF) scheme is a
retirement protection scheme for the entire working
population in Hong Kong
• All employees and self-employed persons of 18 years
of age or over and below age 65
• Unless specifically exempt under the MPFSO, e.g.
Domestic employees, Self-employed hawkers, People
covered by provident fund schemes, such as civil
servants and subsidized or grant school teachers

8. Q3.4 What does relevant
income mean?
How are contributions
calculated?
What is the current
MPF “salary cap”?
It refers to all payments in monetary terms given to employees.
It includes wages, salary, leave
pay, fee, commission, bonus, gratuity, perquisite or allowance, but
excluding severance payments and long service payments.
Both you and your employer can opt to make extra, voluntary contributions
in addition to your mandatory
The current salary cap is HK$20000

9. Q3.5 What is the difference
between an MPF trustee and an
MPF service provider?
How many MPF trustees are
registered with the MPFA?
Jenny and Kenneth

10. Difference between
Trustee and Service Provider
Approved MPF trustees are entrusted with overall
responsibilities for the administration and
management of MPF schemes.

11. Difference between
Trustee and Service Provider
While the MPF trustees may :
- Delegate part of their functions to
other Service Providers
And the Service Providers have to :
- Comply with the provisions of the MPF legislation
- Discharge their responsibilities with due care
- Exercise their fiduciary duties.
Reference: http://www.mpfa.org.hk/english/super/super_st/super_st.html

12. The 19 MPF Trustees registered
with the MPFA
• Ageas Trustees (HK) Limited
• American International Assurance Company (Trustee) Limited
• AXA China Region Trustees Limited
• AXA Financial Services Trustees Limited
• Bank Consortium Trust Company Limited
• Bank of Communications Trustee Limited
• Bank of East Asia (Trustees) Limited
• BOCI-Prudential Trustee Limited
• China Life Trustees Limited
• Cititrust Limited
• HSBC Institutional Trust Services (Asia) Limited
• HSBC Provident Fund Trustee (Hong Kong) Limited
• ING Pension Trust Limited
• Manulife Provident Funds Trust Company Limited
• MassMutual Trustees Limited
• Principal Trust Company (Asia) Limited
• RBC Dexia Trust Services Hong Kong Limited
• Royal Bank of Canada Trust Company (Asia) Limited
• Sun Life Trustee Company Limited
Reference: http://www.mpfa.org.hk/english/reg_use/reg_use_amt/reg_use_amt.asp

13. MPF
INTERMEDIARY
Will Lee and Rowena Lai

14. Q3.6 What is MPF intermediary?
 Selling MPF schemes
 Advising clients on constituent funds or
underlying approved pooled investment
funds of MPF schemes
 Register with the MPFA
 Be supervised by financial regulatory
regimes
 Pass the MPF Intermediaries Examination

15. Types of MPF intermediaries
 Corporate intermediary
 - company that is responsible for the
supervision of the activities of MPF
schemes
 Individual intermediary
 - person who engages in selling MPF
schemes and advising on funds

16. Who regulate them?
 Subject to the supervision of at least one
regulatory regime.
 Hong Kong Monetary Authority, the
Securities and Futures Commission and
the Insurance Authority are the financial
regulators.

17. Question 7
What is the Employee Choice Arrangement and why has
it been proposed?

18. Employee Choice Arrangement
 Allows employees to choose the MPF provider as well as the
different types of MPF funds.
 Aims at lowering the admin fees charged by MPF providers.
 When there is more competition among MPF providers, it
creates pressure and forces the MPF providers to lower the
fees.
 Originally scheduled to come into effect in April 2011
 Government has postponed it and it is now expected to
come into effect in the second half of 2012
 From: MPF Choice Put Back to July 2012.
 http://topics.scmp.com/news/hk-news-watch/article/MPF-choice-put-back-to-July-2012

19. Question 3.8
What is an MPF scheme and is there more than one
kind?

20. MPF Scheme
 Three main kinds of schemes:
 Master trust schemes
 Industry schemes
 Employer sponsored schemes
 MPF Schemes can also be called Registered schemes
 In 2011, there were a total of 38 MPF schemes
 Most common and larger in scale: Master trust schemes
 Pooling contributions from a large number of employers and
employees  economies of scale  lower admin cost
Source:http://www.mpfa.org.hk/english/quicklinks/quicklinks_pub/quic
klinks_pub_ar_12.html

21. Q3.9:What is an MPF
constituent fund?
A constituent fund invests in one or more
approved pooled investment funds (“apif”) or
invests directly. An apif can be a unit trust or an
insurance policy
Employees have the right to choose MPF
constituent funds.

22. Simplified from “MPF Investment: What every employee should know”
by HKIFA,
http://www.hkifa.org.hk/eng/download/fundinfo/mpf/HKIFA_Edu_E.pdf
Main types of MPF constituent funds
Equity Balance Bond Money Capital Guarant
Fund d Fund Fund Market Preserva eed
Fund tion Fund
Fund
Primary growth growth + income + capital capital capital
investme some some security security security
nt income growth
objectiv
e
Geograp Single Usually Single Usually In HK HK/Regi
hical Country/ global Country/ in only 1 only onal/Glo
location Area Area single bal
Regional Regional market
Global Global
Expecte High Low A pre-
d rate of set
return minimum

24.  From 1 December 2000 to 31 December 2010,
Total amount contributed to the MPF system:
HK$277.52 billion
 Total
net contributions at 31 DEC: grown to
HK$365.44 billion of accrued benefits
 Investment returns had added HK$87.92
billion to the net contributions of members

25.  MPFSystem recorded an annualized return of
5.5% over the 10-year period after fees and
charges
 Yearlyperformance of the MPF system:
fluctuated negative annualized return of -
25.9% to a positive annualizedreturn of
30.1%.

26. FINANACE
Q3.11: What do the terms Fund Expense Ratio
(FER) and Fund Risk Indicator (FRI) mean and
how is each one calculated?

27. Fund Expense Ratio (FER)
 Indicates how much money is paid for
services on investment
 Components of operating expenses:
1. Management fees
2. Advertising and marketing expenses
3. Accounting, auditing fees
4. Transaction costs
5. Transfer agent fees

28. Fund Risk Indicator (FRI)
 Indicates the risk of your MPF fund
 http://cplatform.mpfa.org.hk/MPFA/english/cf_list.js
p
 Is calculated as the annualized
standard deviation based on monthly
rates of return of the fund over a 3-
year period

29. references
 http://cplatform.mpfa.org.hk/MPFA/eng
lish/index.jsp

30. MPF scheme
Question 12
By:
Rebecca
Arthit

31. when and by whom can accrued
benefits be withdrawn from a
member's MPF?
When??
 MPF System was introduced,
 Help as an income earner,
 save for your old age,
 The benefits have to be preserved until you reach the
retirement age of 65
 stipulated in the MPFSO.
Whom??
 Those who have to make the mandatory contributions
 All employees and self-employed of 18 years and above

32. Exceptions??
 circumstances under which accrued benefits may be paid
before:
 early retirement at the age 60; or
 permanent departure from Hong Kong; or
 total incapacity; or
 death (note that the MPF will be regarded as part of the
member's estate and can be claimed by the personal
representative of estate); or
 small balance account of less than $5,000, no contributions
made to a scheme for 12 months, and declared not to become
employed or self-employed within the foreseeable future.

33. Question 13
The MPFA makes four suggestions that people should
consider when identifying their retirement investment
goals. What are they?

34. Advice on Setting retirement
investment goals
 1) Have a clear set of investment goals:
 Consider your income and expenses
 Don’t forget inflation
 2) Assess your own risk tolerance level:
 If you are willing to take more risk, you can choose more aggressive
investment portfolio, vice versa.
 3) Estimate your investment horizon:
 If you have a longer investment horizon, you can “afford” to take more
risk.
 4) Adjust your investment portfolio at different life stages:
 Keep reviewing and adjusting your portfolio as there will be changes in
your life.
From: Look After Your MPF Investment
http://www.mpfa.org.hk/english/mpf_edu/mpf_edu_laymi/mpf_edu_laymi_uyn/mpf_edu_laymi_uyn.html

35. Q3.14:What should employees consider
when choosing MPF Funds?
-RISK
- low risk steady growth vs high risk high growth
- consider risk tolerance levels
- high risk tolerance levels: Equity Fund,Index
fund
- medium risk tolerance levels : Mixed Assests
Fund
- low risk tolerane levels : Money Market Fund,
Guaranteed Fund, Bond Fund

36. What should employees
consider when choosing MPF
Funds?
-Know the fund's features
fund's launch date, its net asset value, type
and asset allocation.
-> reflect fund’s risk level
-Understand investment objectives
e.g MPF Conservative Fund vs Equity fund
-Take note of fees and charges
Fees and charges will affect a fund's long-term
return