Mercer Launches Hong Kong Mandatory Provident Fund Index

Consulting firm Mercer has launched a monthly index, the Mandatory Provident Fund Satisfaction Index, which will measure the satisfaction level of Hong Kong residents toward the Mandatory Provident Fund (MPF) system.

“We believe that the survey will provide useful insights on the MPF system and hopefully to improve understanding of satisfaction with the scheme,” said Billy Wong, Mercer’s wealth business leader for Hong Kong, China, and Korea.

The MPF is a compulsory pension fund for retirees in Hong Kong. In its inaugural survey for April, the index registered a 50.3 on a scale of a possible 100, with only 11% of respondents saying they were “satisfied” with the MPF system. Nearly 60% indicated they are “dissatisfied,” and only 31% deemed the system “fair.”

The survey found that younger employees seem to be less satisfied with the MPF system than their older counterparts. The average satisfaction index for respondents aged 55 or above was 66.4, compared with 47.3 for those aged 35 to 54, and 45.59 for those aged 20 to 34.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

“To younger workers, retirement planning may seem like a distant matter which does not require immediate attention, while some may wish they had the funds to invest in other ventures,” said Wong. “The Mercer MPF SI offered us very interesting insights as to the different needs and sentiments towards MPF or retirement among employees in different life stages. These differences will be important for MPF providers and government bodies to keep in mind when devising retirement planning or MPF communications and education.”

The monthly survey was conducted among Hong Kong workers aged 20 to 65 on Mercer’s behalf by market research firm Nielsen. The survey examined knowledge, understanding, and satisfaction with the MPF system, as well as with current MPF-related developments.

The survey results also showed a lack of confidence among employees that the MPF will meet their retirement needs. Although 43% of respondents had average expectations when asked if the MPF would cover their post-retirement expenses, 36.8% had “low” or “very low” expectations, while only 21.2% had high expectations.

The survey also found a positive correlation between how knowledgeable a respondent is of the MPF system and their satisfaction with it. The average satisfaction index for those who deemed themselves “not knowledgeable” about the MPF system was 42.1, compared to 47.5 for those who considered themselves as having “average” knowledge, and 52.8 for those who considered themselves “knowledgeable.”

“Depending on individual needs and goals, it is good practice for employees to review their MPF portfolios at least once a year,” said Wong. “It is important for all stakeholders, including the government, MPF providers, and employers to work together to fill this knowledge gap.”

Tags: Hong Kong, Mandatory Provident Fund, Mercer

The IRS’ decision to delay implementation of its new mortality tables until 2018 means pension plan sponsors must face new decisions and obligations related to minimum contribution requirements, Pension Benefit Guaranty Corporation (PBGC) premiums, and lump-sum distributions to vested former employees, according to a report from investment consulting firm Cambridge Associates.

In 2014, the Society of Actuaries released its draft of updated mortality assumptions, which was the first update in more than a decade. As such, the increase to life expectancies was two to three years, on average. By 2016, accounting auditors largely required defined benefit plan sponsors to use the updated assumptions on their financial statements, resulting in an average drop in reported funded status of 4%-8%, according to Cambridge Associates.

“The IRS’s delayed implementation of these mortality tables definitely creates a wrinkle for CFOs, and the answers aren’t straightforward,” says Greg Meila, senior investment director in the pension practice at Cambridge Associates, and coauthor of the report.

The report cites several new issues that CFOs and sponsors may have to address:

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

Contributions to the plan may have to increase. Because the funded status determines the level of minimum required contributions, a decline in funded status means higher required contributions are needed to make up the deficit.
Premiums due to the PBGC may rise dramatically for certain plans, because a lower funded status also means higher PBGC premiums.
Lump-sum distributions may become key topics of discussion and decision-making. Paying out benefits while the plan is underfunded results in a lower funded status in percentage terms, said the report. And depleting funds means it will be harder to make up for shortfalls with investment returns.

“The CFO of a publicly traded corporate plan may care a great deal about the volatility of financial statement impacts, while a privately-held company CFO or non-profit CFO may care more about the timing and volatility of required contributions or the impact on debt covenants,” said Meila. “Tackling these issues calls for sponsors to craft an overall pension strategy that both incorporates and prioritizes the objectives most relevant to them, subject to their unique constraints and risk tolerances.”

The report also said that pension plan sponsors whose IRS funded status is just above the key threshold levels of 80% or 60% should examine whether the mortality table implementation would cause a violation of these levels, resulting in additional restrictions on the plan. “These sponsors may consider making a near-term contribution to avoid the regulatory consequences,” said the report.

Tags: Cambridge Associates, IRS, mortality tables, PBGC

Mercer Launches Hong Kong Mandatory Provident Fund Index

IRS’ Delay in Implementing Mortality Tables Affects Pension Decisions