Award winner of the Client Support and Investor Education Category for MPF, it is clear that BCT Group puts a high value on providing customers with the knowledge they need to grow their retirement savings efficiently. Ka Shi Lau shares her views on where the retirement market is going, and her advice for customers of all risk levels in getting ready for a happy and well-funded retirement.
BENCHMARK: Where do you see the Hong Kong MPF market going in the future, especially as customer’s retirement savings grow?
Ka Shi Lau: According to the Mandatory Provident Fund Association (MPFA), it takes an average working life of around 40 years for a retirement savings system, such as the MPF system, to mature, thus it is still in the developmental stage. In the past ten years, more fund choices and many new products have been introduced into the MPF regime, including regional equity funds, target-date funds, and passive funds. We expect this trend to continue, with an even wider spectrum of fund choices with broader use of passive funds, which could help drive down the cost. Further, as the total amount of retirement assets in MPFs grows, we believe the whole market will enjoy better economies of scale which should help drive fees down further. Finally, with the launch of Default Investment Strategy (DIS) later this year, there will be a fair amount of money injected into the two new core funds under DIS. These are just some of the largest changes we foresee for the MPF market.
BM: Do you see customers’ behavior changes as their wealth multiplies and investment knowledge develops?
KSL: Regarding future changes to member behavior, we have noticed increasing member engagement as compared to 15 years ago when the MPF system was first launched. We believe this can be attributed to several reasons, one of which may be the increase of retirement money in their accounts as well as better investor education provided by the government and service providers. According to the latest figures from the MPFA, scheme members held about $150,000 in MPF assets on average, as compared to $45,000 as at the end of 2004. Members, in general, will most likely demand more retirement planning services as their money grows, and as members’ financial literacy improves, we expect to see an increased allocation in international markets (i.e. less equity/home-market biased) and larger bond portions. On top of fund switching and other transactions, we also expect more members to use online platforms for managing their retirement savings.
BM: What services or strategies does BCT have in the pipeline for the senior executives who have accumulated a rather larger sum at retirement that you feel most excited?
KSL: We are very excited about BCT’s “Retirement Planning Service” (targeted for those at the retirement age of 65 or an early retirement age of 60) which provides a special rate of 0.59 – 0.99%, and 1-on-1 consultation services. We understand a quality retirement requires not only financial preparation but also psychological preparation. Our “1-on-1 consultation service” helps members plan for their retirement from an economic point of view as well as a personal perspective. On top of financial planning advice, we offer advice and resources on topics including estate planning, health tips, and participation in community services, etc. We are also enhancing our retirement calculator for projection, available online, to help members understand how much they need to save and invest every month to reach their expected retirement goal.
As most MPF members have begun to make their investment decisions, we have noticed that multi-dimensional investor education such as market outlook, house view, model portfolio for different risk categories, social media, together with the online self-service portal has continued to be well-received by our members.
BM: What are some of the tax benefits in place for owners of a company, or with a larger contribution amount for making additional voluntary contributions?
KSL: For tax strategies, currently employers can claim tax deductions for the mandatory and voluntary contributions made to their employees, to the extent that they do not exceed 15% of the employee’s total emoluments. Any voluntary contributions made on a personal level, however, are not tax deductible. There is growing support in the industry for tax incentives on voluntary contributions made by employees which may come to fruition in the future.
BM: What about investment strategies?
KSL: For Investment strategies, we advise that rather than contribution amount, members should take several factors into consideration, including age, risk appetite, and their desired lifestyle in retirement. In general, members who are further away from or who have more years before reaching retirement can allocate more assets to higher-risk investments (e.g. equity funds) to capture growth potential and de-risk as they approach retirement (e.g. bond funds).
BM: What are the benefits of leaving funds in the MPF account after retiring?
KSL: Under the MPF system, the provision for phased withdrawal of benefits is available as an option starting February 2016. Some of the benefits of leaving funds in an MPF account include having their savings continuing to be invested and managed by professional fund managers, and members can take money as and when needed while still taking advantage of the compounding effect of investment returns.
BM: Does BCT have strategies where members can derive an income stream from those accounts?
KSL: With the implementation of phased withdrawal, members of BCT can set up a standing instruction to pay a fixed amount from their MPF accounts at regular intervals to a designated bank account. BCT also allows members to withdraw assets free of charge without limiting the number of withdrawals, more flexible than the required four times a year. Further, at BCT under our “Retirement Planning Service,” we offer a special rate of 0.59 – 0.99% to members on a personal account who are above 65 years of age or at the early retirement age of 60.
BM: Is there any tax or estate planning advantages for account holders with a larger balance?
KSL: Having said that, MPF is only one of the pillars (the other is a privately-managed, mandatory occupational scheme) under the World Bank’s multi-pillar retirement protection framework. It is not designed to take care of all retirement needs. We advise that one should take a holistic retirement planning approach – such as taking extra steps to enhance retirement coverage, i.e. making special voluntary contributions. At BCT under our “Easy Gold Plan,” we offer a special rate of 0.75 – 0.99% to all members who make special voluntary contributions.
BM: For busy executives who do not have time to manage their portfolio of MPF, what would you suggest they do in this highly volatile yet correlated market?
KSL: First of all, we would suggest that they understand their risk tolerance levels before making any decisions. Members can do so using our risk profile test. Members should also take other factors into consideration, including age, their desired lifestyle in retirement, and if they have adequate knowledge of the economy.
Generally speaking, for aggressive investors, they can take advantage of dollar-cost-averaging by investing a fixed amount regularly into the fund or funds of their choice, regardless of short-term fund price movements. Members can reduce the effects of short-term market fluctuations and “average out” the cost of units over time by investing for the longer-term. For moderate risk investors, global diversification of investment by using target-date mixed asset / mixed asset funds can be a viable option. Conservative investors should consider diversified bond funds. However, those investors should bear in mind that bond funds are not risk-free – they are also subject to currency risks, interest rate risks, and credit risks, among others.
Again, MPF should only be a part of one’s retirement plan. Members should take a holistic wealth planning approach. BM