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August 2018

MPF System is doing well by international standards

Serving as a key pillar of Hong Kong’s retirement protection framework, the Mandatory Provident Fund (MPF) System aims to help the workforce save for retirement. There are five key outcomes identified by the World Bank for evaluating a private pension system: adequacy, coverage, security, sustainability and efficiency. The MPF System has performed well in a number of respects.

The MPF has wide coverage. Employees and self-employed persons aged 18 to 64 are covered by the MPF System. Before the introduction of the MPF System, only one third of the workforce enjoyed retirement protection. Today 84% of the total employed population is covered under the MPF and other retirement protection schemes, which is a high ratio compared with other schemes in the international arena.

The MPF is financially sustainable, as it does not place a burden on government, employers or employees to finance any shortfall of under-funded schemes. The MPF is also growing in size relative to the domestic economy. As at the end of June 2018, MPF assets reached $852 billion, representing approximately 30% of Hong Kong’s 2017 Gross Domestic Product.

MPF savings are safeguarded under a sound legal and financial system in Hong Kong. MPF schemes are managed and maintained under trust by MPF trustees, who must meet stringent statutory criteria. MPF assets are under the safe custody of qualified custodians and are kept separate from those of employers, MPF trustees or other service providers.

The efficiency of the MPF System has been improving, with costs being lowered over the years due to various initiatives undertaken by the Mandatory Provident Fund Schemes Authority (MPFA), such as the Employee Choice Arrangement and the Default Investment Strategy (DIS). The Fund Expense Ratio (FER), which was 2.1% when introduced in December 2007, has dropped to a record low of 1.53% in July 2018. The MPFA is developing a centralized electronic platform, called eMPF, with a view to bringing greater efficiency and cost-efficiency to the MPF System in the long run.

By design, the MPF alone is inadequate for retirement, as it is only one pillar in the multi-pillar retirement protection system in Hong Kong. It is expected that with the abolition of the offsetting arrangement and introduction of tax deductions for voluntary contributions in the future, more MPF savings will be retained in scheme members’ accounts to better meet their retirement needs.

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