MPF RESEARCH FOR EMPLOYERS MEANS PROMISING FUTURE

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2 MPF RESEARCH FOR EMPLOYERS MEANS PROMISING FUTURE 2017

3 MPF RESEARCH FOR EMPLOYERS MEANS PROMISING FUTURE 2017

4 PREFACE MPF Research for Employers. This year, we are proud to publish the 4 th edition which highlights areas of focus on the challenges to employers from the perspective of pension cost as well as employee needs and satisfaction on MPF. The book continues to provide all-in-one essentials to employers on what they need to be aware of on MPF management, for their employees and the company as a whole. Gain Miles aspires to be not just an independent consultancy, but also a leader providing insights on the market trends and development in the pension industry. With a view to achieving this, a host of MPF surveys are conducted in hands with The Public Opinion Programme of the University of Hong Kong (HKUPOP) to examine members behavior and expectation which Thanks to the government s initiatives such as the launch of Default Investment Strategy (DIS), e-enquiry of Personal Accounts (epa) and the industry s efforts to member education, we up from 2014, a good sign of the endeavors made in joint efforts of the stakeholders to help members manage MPF more effectively. Nevertheless employers will have to tackle quite some impending market challenges, in particular the cost impact of the abolishment of MPF offsetting mechanism which as a result escalating employee expectation on MPF performance. We hope this book can inspire you on Enjoy reading and share with anyone who might be interested in it. Chief Executive Gloria Siu

5 CONTENT Preface Pension Cost Analysis 3 Pension Cost Trend by Focused Industries 5 Provision of MPF Voluntary Contributions 7 9 Trends of Employee Behavior, Knowledge and Expectations 11 Members Response to Default Investment Strategy 16 MPF Performance Review Fund Performance by Fund Type 17 Average MPF Performance vs CPI 19 Equity Fund Performance by Region 20 Top 10 Performing Funds 21 Top 10 Performing MPF Sub-categorized Funds 23 Education Campaign Analysis Demand for MPF Member Education Helpdesk Survey Result 31

6 Gain Miles MPF Consultants Limited Pension Cost Trend by Focused Industries Among the 4 focused industries, the pension cost is the highest in Trading Industry at HK$22,090, followed by Manufacturing Industry at HK$20,036, Business & Financing Services Industry at HK$17,453 and Logistics Industry and 18.0% respectively, reflecting the growing importance placed by employers on pension benefits for staff retention and recruitment, particularly for the rapidly ageing and highly economic performance sensitive workforce. Figure 4: Employee Benefit Cost on MPF/ORSO Business & Financing Services Industry Gain Miles MPF Consultants Limited Pension 17,500 15,000 12,500 10,000 7,500 6,080 10,944 10,226 10,164 13,898 15,249 17,453 Relevant Income (%) 7.0% 6.0% 5.0% 4.0% 3.0% Provision of MPF Voluntary Contributions offered by employers to enhance employees retirement protection, on top of the 5% mandatory contributions (MC). Same as MC, VC is also 5,000 2, % 2.8% 3.6% 5.1% 5.8% 5.0% 4.9% % 1.0% 0.0% leap. According to MPFA, 92% awardees of the Good MPF Employer Award offer VC to their employees, 17% offer more than one Mandatory Provident Fund (MPF) scheme to their staff to choose Figure 8: Percentage of Good MPF Employer Awardees Offering VC Figure 5: Employee Benefit Cost on MPF/ORSO Manufacturing Industry Pension 24,000 21,000 18,000 15,000 15,788 16,745 16,975 20,036 Relevant Income (%) 8.0% 7.0% 6.0% 5.0% 877 Good MPF Employer Awardees of % According to MPFA, 92% offer VC for their employees 12,000 12, % 9,000 8, % 6,000 3, , % 6.0% 3.7% 7.6% 5.9% 5.5% 6.5% % 1.0% 0.0% In terms of contribution amount, the portion of VC out of total contributions contributes to 14% of the total contributions in the market as of 2016 (Figure 9) and that is expected to increase over time. Figure 9: Percentage Share of Contribution Received by Contribution Type % Mandatory Contribution MPF MEMBER BEHAVIOR & CONFIDENCE SURVEY MPF Research For Employers Voluntary Contribution, 14% Special Voluntary Contribution, 9% Confidence Delving deeper into members confidence on MPF as retirement protection, cross dimensional questions such as confidence and importance ratings of the sub-index on clothing, food, accommodation, medical care and transportation were added in the past 2 years (Figure 12 & 13). In the 2017 survey, majority of respondents still showed relatively low confidence on MPF as retirement protection, with an average rating of 3.4 out of the 10-points scale, a slight improvement observed as compared to 3.2 last year. 60.1% respondents assigned a rating Figure 10: MPF Confidence Index (base) Figure 11: MPF Confidence Score % % 17.4% % 11.1% 9.9% 5.8% 2.8% 2.0% 0.4% 0.9%

7 Gain Miles MPF Consultants Limited Gain Miles MPF Consultants Limited Top 10 Performing Funds Similar to that of last year, U.S. Equity or U.S. Equity related Funds totaling 8 funds dominated the top 10 performing funds over the past 5-Year period ending June 30, Despite the stellar performance with the top U.S. Equity Fund recorded over 80% growth over 5 years, U.S. Equity Funds only accounted for 10% of the total MPF assets and contributed modestly to overall MPF market return. Aside from U.S. Equity or related Funds such as the Healthcare Fund, 2 Equity Funds, with one from Japan and the other one from Europe, were also in the top 10 during the past 5 years, ranking the 2 nd and 8 th place respectively. It is also worth highlighting that the performance of Funds in the same category might differ significantly and investors may consider seeking professional advice from consultants to optimize potential return. Table 5: Top 10 Performing MPF Funds for Rolling 5-Year Period as at June 30, 2017 Average MPF Performance vs CPI The 5-Year annualized return of all MPF funds up to June 30, 2017 was 5.26%, outperforming the Composite Consumer Price Index (CPI) which recorded an annualized growth rate of 3.02%. The Composite CPI, in which housing-, food- and transport-related expenses constituted 70% of the index, had slowed down in 2015 and 2016 with annual growth recorded at 3.0% and 2.4% respectively. The upside risk of CPI Fund types with higher Equity assets portion was able to beat inflation over the past 5 years, such as Equity Funds and Mixed Assets Funds. However, all low risk fund types including Bond Funds, Guaranteed Funds, MPF Figure 16 : MPF Fund Performance vs CPI June 2012 June % Cumulative Return % Name of Fund (Jul 1, 2012 Jun 30, 2017) Manulife Global Select MPF Scheme North American Equity Fund 86.7 Manulife Global Select MPF Scheme Japan Equity Fund 86.6 Mass Mandatory Provident Fund Scheme US Equity Fund 83.6 Hang Seng Mandatory Provident Fund ValueChoice US Equity Fund 80.9 HSBC Mandatory Provident Fund ValueChoice US Equity Fund 80.9 AIA MPF Prime Value Choice (PVC) North American Equity Fund 79.5 Manulife Global Select MPF Scheme Healthcare Fund 76.6 Return 30% 25% 20% 15% 10% 29.23% 16.02% Mass Mandatory Provident Fund Scheme European Equity Fund 74.8 HSBC Mandatory Provident Fund SuperTrust Plus North America Equity Fund 71.3 Hang Seng Mandatory Provident Fund SuperTrust Plus North America Equity Fund 71.3 Source: Morningstar 5% 0% 5-Year annualized MPF Average Return : 5.26% 5-Year annualized CPI growth : 3.02% -5% Jun 2012 Jun 2013 Jun 2014 Jun 2015 Jun 2016 Jun 2017 Composite CPI (Base = 2012 June) MPF Average Return Source: Census and Statistics Department, Morningstar Gain Miles MPF Consultants Limited Top 10 Performing MPF Sub-categorized Funds Hong Kong Equity Fund (Index Tracking Fund Inclusive) Figure 17: 5-Year Cumulative Return - Hong Kong Equity Fund (Index Tracking Fund Inclusive) 5-Year Performance 80% Haitong MPF Retirement Fund - Best Haitong Hong Kong SAR Fund 58.8% AIA MPF - Prime Value Choice Worst Hong Kong Equity Fund 26.9% Class Average 44.5% Return 70% 60% 50% 40% 30% 20% 10% 0% -10% Class Median 45.5% Jun 2012 Jun 2013 Jun 2014 Jun 2015 Jun 2016 Jun 2017 Total No. of Funds 47 Haitong MPF Retirement Fund - Haitong Hong Kong SAR Fund AIA MPF Prime Value Choice Hong Kong Equity Fund Class Average: Hong Kong Equity Fund (incl. Index Tracking) Mixed Assets Fund (Equity Content 80% - 100%) Figure 18: 5-Year Cumulative Return - Mixed Assets Fund (Equity Content 80% - 100%) 5-Year Performance 60% Best Invesco Strategic MPF Scheme - Growth Fund 50% 54.9% 40% Worst AIA MPF - Prime Value Choice Allianz Growth Fund 33.3% Return 30% 20% Class Average 43.4% Class Median 43.6% Total No. of Funds 25 MPF Conservative Fund 5-Year Performance BCOM Joyful Retirement Best* MPF Scheme - Conservative Fund* 5.3% 10% 0% Jun 2012 Jun 2013 Jun 2014 Jun 2015 Jun 2016 Jun 2017 Invesco Strategic MPF Scheme - Growth Fund AIA MPF - Prime Value Choice Allianz Growth Fund Class Average: Mixed Assets Fund (Equity Content 80% - 100%) Figure 19: 5-Year Cumulative Return - MPF Conservative Fund 6% 5% 4% MASS Mandatory Provident Fund Worst Scheme - Conservative Fund -0.1% Class Average 0.9% Class Median 0.3% Total No. of Funds 31 * Performance Before Fee Return 3% 2% 1% 0% -1% Jun 2012 Jun 2013 Jun 2014 Jun 2015 Jun 2016 Jun 2017 BCOM Joyful Retirement MPF Scheme - Conservative Fund* MASS Mandatory Provident Fund Scheme - Conservative Fund Class Average: Conservative Fund

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