MPF RESEARCH FOR EMPLOYERS. Means Promising Future

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2 MPF RESEARCH FOR EMPLOYERS 2016 Means Promising Future

3 Preface Welcome to Gain Miles MPF Research for Employers report This report was published with an objective to provide the most comprehensive information to employers in terms of pension costs, investment performance, key market statistics and consistent tracking of employee needs. Now in its third year, we continue to provide all-inone essentials to employers with this book, providing advice to employers on how to assist employees on MPF management in response to the latest market development and member opinion. We started tracking employee opinion in joint efforts with The Public Opinion Programme of the University of Hong Kong (HKUPOP) since 2012, with our desire to understand members confidence on MPF and their expectation from employers. We are particularly pleasing to and demonstrate our commitment to member education. From this book not only you will get a glimpse of the survey trends that have been developing over time, you will also get an idea about members opinion towards Default Investment Strategy (DIS), a new reform proposal by the government to better regulate the default fund arrangement with highly standardized and fee-controlled investment funds. Over the years, Gain Miles prides itself with its leadership that delivers professional analysis, indepth market knowledge and centered-around advice. We trust this book would help employers become more forthright in articulating the values of MPF and serve as an easily accessible and practical guide to build staff productivity and satisfaction. Enjoy reading and welcome any suggestions for the potential topics for the 2017 edition. Chief Executive Gloria Siu

4 Content PREFACE CHALLENGES ON THE RISE Pension Cost to Employer 3 Employee Behavior, Knowledge, Expectation 5 7 INVESTMENT PERFORMANCE Fund Performance by Fund Type 9 Average Fund Performance vs CPI 10 Top 10 Performing Funds 11 Top 10 Sub-Categorized Fund Performance by Assets 13 MARKET AT A GLANCE Key MPF Market Statistics 17 Fees & Charges 19 Key MPF News 23 GAIN MILES SOLUTIONS Why Gain Miles 25 Multi-Provider Model 27 Member Education 29

5 Employee Benefits Cost on Pension Pension Cost to Employer Employers take a vital role under the MPF system to protect the working population. Under the MPF system since its inception in 2000, employers have the obligation to comply with the MPF regulations by enrolling employees into the MPF scheme they are participating and make regular mandatory contributions to the MPF scheme. With the increase in monthly employment income (Figure 2) and the adjustment of minimum level of relevant income (Min. RI Level) and the maximum level of relevant income (Max. RI Level) (Table 1), pension cost borne by employers has jumped by over 110% in the past decade, according to the 2015 Employee Insurance Benefits (EIB) Research Gain Miles conducted in hand with the College of Professional and Continuing Education (CPCE) of The Hong Kong Polytechnic University (PolyU). Figure 3-6 shows the increasing trend of pension costs of overall market and specific industries from , with the highest leap of over 180% in manufacturing industry. Market Overall 18,000 15,000 12,000 9,000 6,000 3, ,185 14,940 12,632 10,180 10,009 7, % 3.8% 4.2% 6.3% 6.0% 5.9% % 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Source: Gain Miles Employee Insurance Benefits Research Figure 2: Median Monthly Employment Income in Hong Kong Table 1: Minimum and Maximum Relevant Income Levels in Respect of Employees Receiving Monthly Remuneration $ 16,000 $ 14,000 Applicable to contribution periods commencing: Min. RI Level ($ per month) Max. RI Level ($ per month) $ 12,000 $ 10,000 1 Nov May ,500 20,000 1 June Oct ,500 25,000 $ 8,000 $ 6, Nov May ,100 25,000 1 June 2014 and thereafter 7,100 30,000 Note: 1) Foreign domestic helpers are excluded 2) The median monthly employment income refers to the figure as at the forth quarter of each year, except for 2015 which refers to the first quarter of the year Source: MPFA Source: Census Department (2015)

6 MPF Public Opinion Survey Results Employee Behavior, Knowledge, Expectation Behavior Confidence Behavior Knowledge Expectation Back in 2012, Gain Miles carried out the first annual General Public Opinion on MPF in collaboration with The Public Opinion Programme (POP) of the University of Hong Kong (HKU), aiming to examine the development of MPF members in terms of their behavior, knowledge, expectations and confidence, and in the long run to assist members and employers to better manage their MPF. In its 5 th run this year, new questions on weighting determining the relative importance of confidence sub-index including clothing, food, accommodation, transportation, medical care and entertainment; and members opinion towards Default Investment Strategy (DIS), a new proposal by the government to better regulate the default fund arrangement with highly standardized and low-fee funds, were added with results summarized on p.5-8 Question Did you spend at least 30 minutes to review or evaluate your MPF investment in the past 12 months? Question Why didn t you review or evaluate your MPF investment? (Multiple answers allowed) Not sure/ hard to say 0.1% Yes 24.3% 51.4% 39.7% No 75.6% 31.6% 30.7% Question What is the most important evaluation criteria when you review MPF investment? (10-Most important; 0-Least important) No expectation on MPF return Too complicated/ hassling Fund Performance Fees & Charges Fund Choice Reputation of Service Provider Service Level No Time Lack of Knowledge Mean=7.5 Mean=7.2 Mean=7.1 Mean=6.8 Mean=6.3

7 Top 10 Performing Funds Top 10 Performing Funds Similar to that of last year, all top 10 performing funds for the 5-year period ending March 31, 2016 were either direct U.S. Equity or U.S. Equity related funds. U.S. was the best performing market during the period, yet no Except the top performing Health Care sectorial fund and the Green Fund which ranked the 10th position in the table below, the others were direct U.S. Equity or North America Equity Funds. Having said that, there was a wide gap of performances between the funds even though they are investing into the same market, when we looked at the cumulative return of the 2 nd top performing fund at 60.2% whereas the one ranked the 2 nd last was 45.5%. Table 3: Top 10 Performing MPF Funds for Rolling 5-Year Period as at March 31, 2016 Name of Fund Cumulative Return % (April 1, 2011 March 31, 2016) Manulife Global Select MPF Scheme Healthcare Fund 66.4 AIA MPF Prime Value Choice (PVC) North American Equity Fund 60.2 Hang Seng Mandatory Provident Fund ValueChoice US Equity Fund 55.9 HSBC Mandatory Provident Fund ValueChoice US Equity Fund 55.9 Principal MPF Scheme Series 800 US Equity Fund Class I 50.7 Manulife Global Select MPF Scheme North American Equity Fund 50.1 Mass Mandatory Provident Fund Scheme US Equity Fund 48.6 Hang Seng Mandatory Provident Fund - SuperTrust Plus North America Equity Fund 45.5 HSBC Mandatory Provident Fund - SuperTrust Plus North America Equity Fund 45.5 AIA MPF Prime Value Choice (PVC) Green Fund 33.7 Source: Morningstar

8 Trends of Fund Expense Ratio Fees & Charges MPFA developed the Fund Expenses Ratio (FER) during the year 2007 and that has been adopted formally by the industry to measure the total fees and charges of a MPF fund. It is the ratio of all the expenses incurred and charged to the MPF fund as a % of the fund size. These expenses are being paid out of the fund and it the Fund Fact Sheet of a scheme. Special note should be taken that FER stated in the fund fact sheet is only The trend of the weighted average of total FER of all the MPF funds were shown in Figure 25 below. Improvement of FER has been observed which has dropped from 2.1% of 2007 to 1.59% of March It is reckoned that FER will still be decreasing with the expansion of fund size in the coming period. FER will further go down if the manual process of MPF within the industry can be improved. Figure 27: Average FER of the MPF Constituent Funds, 2007 to March 31, % 2.10% 2.1% 2.00% 2.01% 1.94% 1.90% 1.84% 1.80% 1.77% 1.75% 1.70% 1.60% 1.70% 1.65% 1.6% 1.59% 1.50% 12/ / / / / / / / /2015 3/2016 Source: Mandatory Provident Fund Authority (MPFA)