Hong Kong, 29 September 2016: Fidelity International today unveiled that the Fidelity MPF Readiness Index 2016 has dropped to 69.1, from 70.4 a year earlier. The proprietary index measures the level of awareness, understanding and engagement of members towards their MPF accounts through a survey. The survey also found that the scheme members’ self-perceived lack of knowledge was a key obstacle preventing them from taking a more active MPF management stance.
The Fidelity MPF Readiness Index is based on data collected through an online survey of over 1,000 MPF members aged between 20 and 65, with a monthly salary of HK$7,100 or more. The Index dropped 1.3 points year on year, with a decrease recorded in the level of awareness and engagement among MPF members. KP Luk, Head of Hong Kong Defined Contribution Business, Fidelity International, said: “Our survey found that around 40% of MPF members were unaware of the investment performance of their MPF accounts in the last 12 months; a number that has increased significantly from a year earlier when it stood at 16%.”
Of the three sub-indices, the engagement sub-index is the lowest (50.8), with awareness and understanding and sub-indices recording 84.4 and 72.0 respectively. Mr. Luk added: “In line with last year’s survey, the level of engagement toward MPF management is relatively low. We need to identify the obstacles in order to encourage a more active level of MPF management. Our survey found that a majority of the respondents were of the view that they lacked the sufficient knowledge deemed crucial to manage their MPF proactively. However, less than one-third of them had sought help from either employers or MPF providers.”
More than a quarter of the respondents surveyed (26%) cited their lack of knowledge as the primary factor undermining their ability to manage their MPF in a more proactive fashion, with over half of them stating they did not have a solid grasp of the investment markets, funds and portfolio construction. Mr. Luk explained: “The Fidelity MPF survey also found that post-80s and post-90s MPF members are investing in relatively conservative strategies – over 55% of their MPF contributions are allocated to money market, guaranteed and bond funds. Whilst asset allocation depends on personal situation, young members usually have higher risk tolerance, and we recommend MPF members to make good use of online tools to learn about their own risk profile.”
Monitoring investments on a regular basis is a crucial component to any sound and proactive investment management, yet the survey also found that many members overlooked that crucial process on the basis that it was too time-consuming. Mr. Luk commented: “Almost one-fifth (17%) of the respondents said that this was the primary reason deterring them from adopting a more proactive stance. However, within this group of respondents, over 50% spend less than two hours and around 40% were unable to say how much time they spend on adjusting their MPF portfolio every time. MPF members have to be willing to devote time and effort in order to manage their MPF effectively, as it is critical to their retirement. Once you start actively managing your MPF, it will quickly become clear that you don't need to devote as much time as initially thought. Moreover, these days most providers have online platforms that members can conveniently use to review and adjust their MPF portfolio anytime, anywhere. Members should consolidate their accounts to make the process more efficient – 72% of them have more than two MPF accounts.”
Discouraging members from adopting a more proactive approach, the survey found, was also the perception that MPF funds imposed high fees whilst delivering low returns; 25% of the respondents cited this as the primary factor. More than half of these respondents (56%) admitted to not knowing the Fund Expense Ratio (FER) amount of their MPF funds. Many estimated their MPF funds’ FER to be in the 8% range, well above the actual average FER (1.57%1).
“Our survey found that the respondents are expecting an annual return of around 13%, with some expecting annual returns as high as 20%, when 43% of them are investing in money market, guaranteed and bond funds,” Mr. Luk said. “Since the launch of MPF in December 2000, MPF equity funds and money market funds have recorded drastically different returns (3.7%1 vs 0.5%1). Asset allocation is critical and members should construct their portfolios in line with their own financial goals and risk tolerance levels. After all, MPF is a long-term investment. Members should set reasonable return expectations, lest there might be significant discrepancies with the results they achieve at retirement.
Mr. Luk concluded: “MPF members should not let those perceived ‘obstacles’ come in the way of their MPF portfolio management. They would be well-advised to tap into the exhaustive amount of information available from employers and providers today. MPF members should also bear in mind that the more active they are in managing their MPF portfolio, the better it will perform. It is also important not to overlook the compounding effect – a small difference in return can have a big impact on your retirement asset if compounded over a period of 30 to 40 years.”
1/ Source: Mandatory Provident Fund Schemes Authority (Mandatory Provident Fund Schemes Statistical Digest, June 2016)
About Fidelity MPF Readiness Index
Commissioned by Fidelity International, the “Fidelity MPF Readiness Index” is compiled by Nielsen and conducted between 8 June 2016 and 19 June 2016. The survey has interviewed a total of 1,011 MPF members who are aged between 20 to 65 on full-time or part-time basis with a monthly salary of HK$7,100 or above and have set up an MPF account. In addition, to fully reflect the working population of Hong Kong, a quota is set with respect to the number of respondents for each particular background group.
About Fidelity International
Fidelity International offers world class investment solutions and retirement expertise. We are a privately owned, independent company, with the commitment and resources to provide the investment expertise, technology and service innovation needed to help our clients achieve their financial goals. We invest USD $272 billion globally on behalf of clients in Asia-Pacific, Europe, the Middle East, and South America. Our clients range from pension funds, central banks, sovereign wealth funds, large corporates, financial institutions, insurers and wealth managers, to private individuals. In addition to asset management, we offer investment administration and guidance for employer benefit schemes, advisers and individuals in several countries. We are responsible for USD $80 billion in assets under administration. (Data as at 30 June 2016)
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