There should be a holistic review of the MPF investment framework so as to better align between accumulation and decumulation; and support the integration of the decumulation offerings, the Hong Kong Investment Funds Association (HKIFA) proposes.
The MPF System has been implemented for two decades and the Government/MPFA have been introducing enhancements on various fronts (e.g. E-Platform and adding China bonds and A-shares). Whilst these have been extremely helpful, we believe that there should be structural enhancements so as to ensure that the System will continue to be fit for purpose and serve the long-term interest of scheme members.
Key suggestions include:
Relaxing investment restrictions generally (both for the accumulation phase and the decumulation phase) to allow MPF funds to invest in a wider range of asset classes (including but not limited to high yield, infrastructure/real assets, PE/VC, infrastructure and commodities). This will enable fund managers to identify additional return drivers for MPF investors and at the same time, offer benefits of diversification. This will ultimately help MPF investors achieve their retirement objectives and wealth creation.
Introducing a separate set of Guidelines/requirements for decumulation products so as to better align with MPF investors requirements during the decumulation phase. Currently the MPF Ordinance has very limited guidance (if at all) in relation to decumulation products and given the demographics of the Hong Kong population this could be considered as a way to foster decumulation product innovation for those +65 years.
Allowing flexibility to facilitate the establishment of Constituent Funds specifically for the decumulation phase, only accessible for +65 years. These decumulation funds could have relaxed investment restrictions to allow exposure to income generative asset classes, income distributions, target date share classes, and potentially allocate to existing investment products currently outside of the MPF system.
The introduction and implementation of the eMPF system provides an excellent opportunity for +65 year retirees who remain in the MPF scheme to switch funds, access funds’ details and consolidate accounts real-time. Considering an approach by which there is a separate set of decumulation products available on the eMPF platform could facilitate a higher proportion of retirees remaining in the MPF System and benefit from low pricing, ease of product switching and decumulation product innovation.
Consumer protection for the decumulation phase could also be considered through support from the MPFA for retirees to make informed investment decisions based on quality information and guidance. This could include the possibility for the MPFA to provide a standard decumulation pathway (separated from the current DIS which is accumulation focused). This could provide a degree of protection by offering a default solution deemed suitable for the typical consumer.
Dis-aggregate the tax incentives for MPF voluntary contributions and QDAP; instead of having an aggregate total of HK$60,000 for TVC and QDAP, i.e. we would suggest to provide a separate tranche for TVC; and another for DA premiums. The two serve different purposes for retirement purposes and are complementary rather than mutually exclusive. In addition, we would suggest that the deductible limit for each tranche be raised to HK$100,000, which is in line with the other allowances, such as child, education and home loan interest.
The aforesaid would require not only a wholesale review of the MPF regulatory framework, but also dialogues and co-ordination with different bureaux. The HKIFA Pensions Subcommittee would be pleased to lend full support and contribute to this important cause.