Matching measures needed
"Our system is not like that of Singapore, which also allows staged withdrawals. Singapore's provident fund system was launched decades ago, plus their level of contributions are much higher than ours - totalling some 35 per cent from both sides. We can't compare ours with theirs, which has been running smoothly for years," says Kenrick Chung, director, MPF Business Development of Convoy Financial Services, an independent financial advising firm.
Without proper guidelines and control, he fears the MPF would be treated as an ATM machine and in the end the government might be forced to use public money to bail out retirees who have insufficient funds to live out their remaining years. However, changes are good and even unwelcome changes can sometimes bring good outcomes because they make people re-examine the status quo and make improvements to old practices, Chung adds.
"If people realise that staged withdrawal option might drain their funds and they will have to cope with that eventuality, they will take steps to counter it by investing in other insurance saving schemes or boost their savings elsewhere," Chung says. He says that because some proposed changes might deplete funds and affect the ultimate return, the government needs to encourage savings or investments elsewhere to counter the possibility of insufficient funds for retirees.
The MPF scheme has long been criticised for offering inadequate returns for retirement planning for the city's ageing population because compulsory contributions are set at a relatively low level by international standards.
About 2.5 million employees and their bosses are required to each contribute 5 per cent of an employee's salary to an MPF provider. Relevant earnings are capped at HK$20,000 so the maximum mandatory monthly contribution is HK$1,000 by both sides. The minimum monthly salary level at which employees are required to make a contribution will go up from HK$5,000 to HK$6,000 from November 1.
"Overall, I think the entire reform exercise is a good gesture. There have been many changes made to the MPF scheme and every time these changes were announced, it generated some sort of buzz in the market, which is good for business," Chung says.
The MPF scheme is not only an important investment vehicle for the working population but also an important business tool for the financial planning sector, Chung says.
"MPF is a great 'door opener'. It concerns everyone and as such it creates direct and indirect business opportunities for industry professionals. Every working person in Hong Kong has an MPF account so the product effectively gives agents and fund providers an excuse to approach potential clients. And whenever the government proposes changes to the scheme, they will always create a huge response from the community, which is great because more public interest creates business," Chung explains.
Providers are obliged to train agents to keep up with the new regulations, which is good for raising professional standards, he adds.
Derek Wong, product and business development manager of Financial Express, a financial investment analysis firm, agrees the "proposed options will bring many benefits."
But he says that to make the semi-portability option work smoothly to best serve the public, the government must implement corresponding measures to support the proposed changes. They include clear guidelines to minimise confusion and a comprehensive database to track fund movement. The semi-portability alternative will allow employees to move their contributions to different trustees once a year.
Some market professionals hope that the newly proposed MPF rules and tighter insurance regulations could work in tandem to rid the industry of less professional elements. "I am not saying there are many unprofessional agents around, but the new rules will certainly have a deterrent effect, forcing industry people to discipline themselves and motivate them to do better. That way, we could prevent the recurrence of something like the Lehman Brothers scandal," says one insurance professional.