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Time to repack the nest eggs?

Published on Friday, 25 May 2012
New and nimble advisers are needed to help Hongkongers re-examine financial plans for retirement.
Photo: May Tse
Myles Morin
Photo: Manulife

Demographic trends already tell us that people in Hong Kong are living longer, with many likely to reach their mid-80s, thus having 20-plus years of retirement. Such findings have all sorts of implications for social policy, medical care, long-term economic planning - and hiring strategy among the city's pensions and benefits providers.

But more immediately, it also means individuals should take a long, hard look at financial plans for retirement and, if necessary, rethink critical assumptions about returns and projected income which may be far less rosy than, say, five years ago.

"Usually, from the investment viewpoint, time is your friend with the opportunity for compounding returns," says Myles Morin, vice-president for investment funds with Manulife (International). "But as you get older, it can seem that time is your enemy, as savings shrink or have to be stretched over a longer period."

What hardly needs stating is that record-low interest rates, moribund bourses and other non-performing instruments have put a dent in even the best-laid plans for retirement. It therefore pays to do a thorough review of probabilities and prospects, guided by realism rather than the kind of forecasts which somehow always produce a smooth upward trajectory.

"People should look at the investment blend and how it will work for them," Morin says. "Overall, they need to be careful and remember not to invest in anything you don't understand."

In line with this, Manulife is continuing to expand its Hong Kong team with new recruits at senior level, as well as in frontline sales and back-office roles.

"We have a mandate from head office to make the investment business bigger, so we will be growing across the Asia region," Morin says. "Here, we are very lucky, sitting in the middle of what is now one of the best investment markets in the world."

As far as retirement strategy is concerned, Morin suggests people should look more closely at dividend yield as a potential source of growth. Thinking long term, balanced funds, usually with a mix of bonds and equities, are a good choice for taking a middle course and avoiding wilder swings. And guaranteed funds, of which there is an increasing number, will offer a greater element of certainty about future returns.

"Guaranteed funds may cost more, but if you take them as a base, you can build up an overall income stream from more than one product," Morin says.

In the current climate, he adds, it is a priority for Manulife to provide what clients need in a straightforward form. This starts with recognising that most investors are mainstream, non-expert and increasingly risk-averse the nearer they get to retirement. It also means offering a range of balanced target-date funds tailored for individuals whose describe their approach to investment as conservative or "moderately aggressive".

"The idea is to make a product that [offers clear benefits] and appeals to the pensions market," Morin says. "It requires 'blue sky' thinking to consider things not done in the past. We are not limited by constraints and, seeing what clients want, are ready to approach the situation from different angles."

As one example, the company is taking a new look at variable annuity products, which would provide security of income and security of capital in retirement. Not many such choices are available these days, partly because of the continuing volatility of the financial markets.

But there is very clear customer demand for investment products which will deliver a steady return and which are less subject to the moods and strategies of Wall Street traders or central bankers.

"With Hong Kong's demographic, as in Canada and the US, we have to address the needs of an ageing population," Morin says. "That means using the strength of our company to guarantee returns to the purchasers of certain products."

In other jurisdictions, there may be a "three-legged" approach to funding retirement, making it possible to rely on a varying combination of government support, company pension, and personal savings. In Hong Kong, though, there is little reason to expect a change to the status quo which, allowing for the Mandatory Provident Fund, still places most responsibility on the individual.

"Hong Kong assumes people will take the initiative and look after themselves," Morin says. "Therefore, the best advice is to count on yourself to the maximum extent possible; start early and be patient enough to invest in good, solid things and just wait; and remember that you can save your way to prosperity."

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