Press release

Over 80% younger generation underestimates compounding effect that works on MPF assets, Fidelity MPF Survey finds

Hong Kong, 26 September 2017: Fidelity International today announced that the Fidelity MPF Readiness Index 2017 slightly increased to 69.6, from 69.1 a year earlier.
  • The annual Fidelity MPF Readiness Index indicates a slight growth in MPF understanding and engagement
  • Members are more engaged with MPF portfolios, yet they are paying less attention to their portfolio performance
  • MPF members are advised to proactively manage their portfolios to ensure it remains in line with investment objectives

Hong Kong, 26 September 2017:Fidelity International today announced that the Fidelity MPF Readiness Index 2017 slightly increased to 69.6, from 69.1 a year earlier. The proprietary index measures the level of awareness, understanding and engagement of members towards their MPF accounts through a survey, which has been conducted yearly since 2015. The survey also found that the scheme members generally underestimate how continuous contribution optimises asset accumulation in their portfolio over an investment period of up to several decades.

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 slightly increased by only 0.5 points year-on-year after a drop in 2016, whilst the level of understanding (73.9) and engagement (52.4) among members rose by 1.9 and 1.6 points respectively compared with last year’s figures. KP Luk, Head of Hong Kong Defined Contribution Business, Fidelity International said, “More members are aware that MPF investments are important for their retirement. However, of the three sub-indices, the engagement sub-index remains the lowest; the level of engagement toward MPF management is still relatively low. Although more members are reviewing their MPF portfolio more frequently, 80% still had no interactions with their MPF providers over the past 12 months. We need to encourage them to be more active in managing their MPF.”

Meanwhile, the awareness sub-index decreased by 1.8 points to 82.6 year-on-year, dropping for a second consecutive year, with 44% of members having no idea how their MPF investment performed last year. Mr. Luk said, “Our survey shows that when members look at their MPF accounts, they know what they have – i.e. the number of MPF accounts, the accrued benefits or the MPF providers appointed by their current employers – but they don’t have a clear picture about how their portfolios performed. This will undermine the members’ expectation on the return they can expect to receive.”

Our survey revealed that the median current accrued benefit for those who have consistently given their mandatory contributions since the MPF scheme launched is HK$275,000, which is higher than the HK$125,000 for those who did not. Constant, long-term contributions into the scheme on top of current accrued benefits without factoring in any investment return until the age of 65 will amount to approximately HK$850,0001. Upon retirement, the projected accrued benefits will even grow further to HK$ 1.76 million, if an annualised internal rate of return of 4%2 is considered. However, many members revealed that their expected accrued benefits will only amount to HK$500,000 after 40 years of continuous mandatory contribution3. The survey showed that 85% of younger generation underestimates the compounding effect of MPF accrued benefits. Mr Luk explained, “The MPF scheme is designed to encourage long-term investment and continuous contributions. With a suitable investment strategy, the compounding effect will be amplified and it is worth managing MPF portfolios proactively in order to seek better returns.”

In addition, it showed that members concern about the impact of inflation to their retirement investment and 70% believes inflation will lower their living standard in retirement. However, more than half of the respondents (54%) take inflation into consideration when planning for retirement. Mr. Luk said, “Inflation will reduce purchasing power and the value of retirement funds. Therefore, it is important to factor in the potential impact of inflation as members allocate their investment portfolios and calculate the accrued benefit of their MPF accounts.”

Mr. Luk concluded, “MPF is a vital part of retirement planning and members should proactively manage their portfolios to make the most of their retirement investments. Continuous and long-term contributions are conductive to investment growth, and through active management, members will be able to grow their portfolios with support from compounding effects. Voluntary contributions and special voluntary contributions can also boost retirement fund accumulation, and if members have several MPF accounts, it is worth considering consolidating the accounts to make MPF investments easier to plan and manage. It is also important to review MPF accounts regularly, including fund performance and investment portfolio. This will help members better understand their own risk profiles and expected returns whether their investment needs are met. Members should also be mindful to adjust their portfolios at different stages of their lives when necessary, as their personal appetite for risk and expected returns change.”

Note:

1/ The projection is based on their median age (38 years old) and median MPI (HK$18,602), a continuous mandatory contribution is made to their MPF accounts until age 65, added by the median current accrued benefits of HK$247,500. i.e. Median MPI HK$18,602 X 10% contribution X12 months X (65 retirement age-38 median age ) + current accrued benefits 247,500=HK$850,204.8

2/ Source: The internal rate of return (net of fees and charges) since inception of the MPF system (from 1 December 2000 to 30 June 2017) is 4% according to Mandatory Provident Fund Schemes Authority publications.

3/ MPF members who did not continuously contribute to MPF for 16 years but will be able to contribute to their MPF accounts for at least 40 years

About Fidelity MPF Readiness Index

Commissioned by Fidelity International, the “Fidelity MPF Readiness Index” is compiled by Nielsen and was conducted between 1 to 14 August 2017. The survey interviewed a total of 1,014 MPF members who are aged between 20 to 65 on a full-time or part-time basis with a monthly salary of HK$7,100 or above and who 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 provides world class investment solutions and retirement expertise to institutions, individuals and their advisers - to help our clients build better futures for themselves and generations to come. As a private company we think generationally and invest for the long term. Helping clients to save for retirement and other long term investing objectives has been at the core of our business for nearly 50 years.

We offer our own investment solutions and access to those of others, and deliver services relating to investing: For individual investors and their advisers we provide guidance to help them invest in a simple and cost effective way. For institutions including pension funds, banks and insurance companies we offer tailored investment solutions and full-service asset management outsourcing. And for employers we provide workplace pension administration services on top or independently of investment management. We are responsible for total client assets of USD $397 billion from over 2.2 million clients across Asia Pacific, Europe, the Middle East, and South America. (Data as at 30 June 2017)

For further information, please contact:

Mariko Sanchanta, Head of Corporate Communications, Asia Pacific (Tel: +852 2629 2808 / Email: mariko.sanchanta@fil.com)
Pieter Bakker, Director, Corporate Communications (Tel: +852 2629 2868 / Email: pieter.bakker@fil.com)
Yolanda Chan, Corporate Communications Manager (Tel: +886 2 2730 1534/ Email: yolanda.chan@fil.com)

Important Information:

FIL Limited and its subsidiaries are commonly referred to as Fidelity or Fidelity International. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. Investment involves risks. This material contains general information only. It is not an invitation to subscribe for shares in a fund nor is it to be construed as an offer to buy or sell any financial instruments. The information contained in this material is only accurate on the date such information is published on this material. Opinions or forecasts contained herein are subject to change without prior notice. This material is issued by FIL Investment Management (Hong Kong) Limited and it has not been reviewed by the Securities and Futures Commission.