In Hong Kong all employers are required to provide a mandatory contribution towards the Mandatory Provident Fund (“MPF”) for retirement savings. Employers and employees, including those self-employed, must each pay 5% of the monthly salary into a retirement fund either one that is privately managed or publicly managed. In simple terms, all employees 18 to 65 and their employers must contribute to a Hong Kong MPF.
This program is governed by the Mandatory Provident Fund Schemes Authority which oversees the supervising of Fund trustees. In addition, it works with other regulating authorities including the Registrar of Occupational Retirement Schemes, to insure that guidelines and laws are adhered to. These restrictions are in place to protect the interests of all MPF Scheme members.
By law, all asset management must be done by investment managers that are registered with the Securities and Futures Commission and have proved that they are locally incorporated investment management companies with at least assets of HK$10 million and an equal amount of paid share capital. The Hong Kong Provident Fund system dictates permissible investments to ensure that some investment risks including liquidity, valuation, and diversification are mitigated. Additionally under the general restrictions guidelines, a single person may not exceed 10% of total assets for the Mandatory Provident Fund.
The Hong Kong MPF was designed to provide financial retirement safety for Hong Kong’s aging population. In 2010, it is estimated that over 13% of Hong Kong’s population were over the age of 65. By 2039, that number is estimated to skyrocket to over 28% of residents being over the age of 65. Life expectancy rates have increased dramatically in the region, and the rate of births continues to decrease. If this dynamic had not been recognized, the working populace would have continued to decrease while the financial demands for retirees would have increased. Now, with the Hong Kong Provident Fund, the population can rest assured that they will have a retirement fund.
There are many benefits to the Hong Kong MPF program. First, it forces even young adults to start planning financially for their retirement. Second, it allows MPF Scheme members to set their individual savings goals, and manage their funds to receive optimum benefit and growth. Since its advent in 2000, Hong Kong residents have had to re-shape their spending and investment habits and attitudes, for the better. The Mandatory Provident Fund does allow for additional contributions to MPF funds by both employers and employees allowing for greater savings potential.
There are a wide variety of funds available for employees to choose from. For those further from retirement age, a more aggressive portfolio can be chosen. For those nearing retirement age, a more conservative portfolio is often a better option. However, there are also many young individuals that have a relatively low emotional tolerance for risk; and that is fine. There are many conservative funds that perform well for long-term investments. Of course, as with all investments, a diversified portfolio is the best strategy. A portfolio that is a mix of both conservative and aggressive funds provides for the opportunity for growth while protecting a portion of the fund.
The key to helping determine the Hong Kong Provident fund to participate in is to figure the costs associated with retirement. These annual costs include housing, medical expenses, food, and entertainment. And then, based on life expectancy rates, multiply it by 20 or 30. While the initial number can be frightening, the earlier it is acknowledged, the easier it is to prepare. The peace of mind that comes with a strong Hong Kong MPF fund is invaluable; it helps protect the elderly from poverty during their retirement years.
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