The Actuarial Society of Hong Kong MPF Market Size Projection

Transcription

1 The Actuarial Society of Hong Kong MPF Market Size Projection Wong Tak Chi 15 Sep 2015

2 Agenda 1. What triggers such exercise 2. The Taskforce 3. The Projection Model 4. Assumptions 5. Key Results & Sensitivities 6. What s Next? 2

3 What triggers such exercise Hong Kong pension actuaries perform projections of MPF market sizes from time to time. Too many factors, including economics, demographics, regulatory changes and member and employers behaviors Lack of an independent view Aim to provide an independent view towards the projection based on the discussions and debates among the pension actuaries in Hong Kong Limitations No definite prediction since the actual outcomes depend on a number of uncertain factors This is the first step Fine-tuning of the projection model and more analysis needs to be done 3

4 The Taskforce A taskforce has been formed within the Committee to work on this study. This study was approved by the Committee on Aug 17, 2015 and the Council of the ASHK on Aug 26, The taskforce consists of the following ASHK members: Billy Wong Gary Lee Michele Yuen Tak-chi Wong 4

5 The Projection Model The MPF marketing size projection is based on the data as of December 31, 2014 as extracted from MPF Schemes Statistical Digest MPF Market Size as of Dec 31, 2014 Contributions received for 2014 Benefits paid for 2014 HK$ 565 billion HK$ 60 billion HK$ 19 billion Most important and challenging part of the model: Projection assumptions 5

6 Assumptions A lot of factors Very subjective Unpredictable? 6

7 Assumptions investment returns of the underlying funds members choices fees of of funds the funds salary inflation mandatory contribution rate increase in Minimum wage voluntary contribution rate retirement age for MPF benefit withdrawal numbers of members eligible to early/normal retirement permanent phased departure rate withdrawal death, disability, small balance withdrawal rates special voluntary working population contribution rate growth adjustment to minimum & maximum relevant income MPF scheme participation rate MPF-exempted ORSO schemes 7

8 Assumptions investment returns of the underlying funds members choices fees of of funds the funds salary inflation mandatory contribution rate increase in Minimum wage voluntary contribution rate retirement age for MPF benefit withdrawal numbers of members eligible to early/normal retirement permanent phased departure rate withdrawal death, disability, small balance withdrawal rates special voluntary working population contribution rate growth adjustment to minimum & maximum relevant income MPF scheme participation rate MPF-exempted ORSO schemes 8

9 Assumptions INVESTMENT RETURN Based on historical return Net of management fees 4% p.a. is recommended The future MPF market size is highly sensitive to this assumption 9

10 Assumptions CONTRIBUTION INCREASE RATE Total contribution growth in the past 10 years = 10% p.a. Growth expected to slow down as the industry start to mature In the long run, contribution growth should be mainly driven by salary inflation The contribution increase rate is assumed to start at 10% at the first year of projection and linearly decrease to 3.5% over a 10 year period 10

11 Assumptions Historical benefit payment rate in the past 10 years = 3.1% p.a. Benefit payment rate anticipated to increase gradually as the working population ages Too many uncertainties, limited experiences, difficult to determine the long term rate The benefit payment rate is to be set at 3.1%, increase linearly to 5.0% over a 10 year period BENEFIT PAYMENT RATE 11

12 Key Results Base Projected 2035 MPF market size is about HK$2.9 trillion, which is close to 5 times of that of % in the next 20 years In 2035, the average account balance per MPF member will be close to HK$1 million Contribution is still higher than Benefit Payment in 2035, but much closer 12

13 Sensitivities Investment Return 13

14 Sensitivities Contribution Increase Rate 14

15 Sensitivities Benefit Payment Rate 15

16 Key Results Summary Projected 2035 MPF market size is HK$2.6 to 3.2 trillion (5 times 2014) Close to HK$1 million average account balance per MPF member Investment Return is the most sensitive factor - 1% difference in investment return leads to HK$ 300 billion in the 2035 MPF market size 16

17 What s Next? Enhance the projection model Currently it is a rather simple model with higher level assumptions Further study on the key assumptions should be performed in future when more data is available, e.g. Trend of voluntary contribution Demography affecting benefit payment Reference the projection with other countries pension system Update with regulatory and market changes 17

18 Thank You! 18