PwC Rebukes Hong Kong Pension Fund

Review says underperforming Mandatory Provident Fund is overdue for an overhaul.

PricewaterhouseCoopers (PwC) has rebuked Hong Kong’s Mandatory Provident Fund for its “high fees, unattractive returns, a reliance on paper-based processing, and a blanket approach that offers few incentives for members to pay more into their MPF portfolios.”

In a recent review of Hong Kong’s MPF system, PwC cited the fund’s weak investment performance, which has provided relatively low returns since it was launched in December 2000. During its 17-year existence, the annualized return on all MPF funds is 2.8%, compared to 5% for the Hang Seng Index over the same period.

“Improvements to the system are overdue, given that it is 17 years since it was first implemented,” said Marie-Anne Kong, asset and wealth management practice leader, PwC Hong Kong. “If we don’t address these problems, it may outlive its usefulness and not be fit for purpose in the near future.”

PwC said major shortcomings at MPF include the large amount of paper-based transactions, a “one-size-fits-all” approach, and low levels of engagement among members. It said lower and higher income earners are discouraged from increasing their MPF investment because there are no incentives, such as tax breaks. And exacerbating the paltry returns, says PwC, are the comparatively high fees due to “inefficient administration processes,” and layering of investments.

The review also criticized the fund for having “inadequate financial literacy— which could help MPF members make informed decisions about their portfolio—and a lack of post-retirement investment products also hinder the transformation of Hong Kong’s pension system.”

In its review, PwC suggests MPF introduce new technologies to construct a centralized database to contain a traceable record of all MPF members on a single platform shared by service providers, members, regulators, and government departments.

“Making efficient use of technology is an essential next step for the MPF system,” said Albert Lo, financial services consultancy partner, PwC Hong Kong. “It is currently far too dependent on paper processes. This pushes up costs and doesn’t enable members to track their investments easily.”

PwC also suggests classifying MPF members by income thresholds, limits on contributions, product selection, or other criteria. It said this would enable the MPF system to ensure that workers with different income levels have suitable levels of contribution, and an increased range of product choices.

“An improved pension system is necessary to reduce the risk of projected shortfalls and to ensure a profitably managed fund that can fulfill its financial obligations to members,” said Kong. “Policymakers have begun to take steps to address some of these issues. But for members to have confidence in the pension system, faster progress needs to be made.”

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