Posted on Feb 10, 2012 by Sergio Ulloa
A new study released this month by Canadian insurance giant Manulife reveals that too many of Hong Kong citizens are not doing enough to adequately prepare for their retirement. Although the city-state's compulsory pension system, the Mandatory Provident Fund (MPF) Scheme, has now been in place for over a decade, eight out of ten Hong Kong workers remain unsure as to whether they have in fact saved enough for their future.
The MPF Scheme was launched in December 2000 and is administered by the Mandatory Provident Fund Schemes Authority
. Under the scheme, Hong Kong workers contribute 5 percent of their salary, capped at HK$1,250 per month of HK$15,000 a year, into their MPF account. This contribution is matched by their employers, who choose which MPF service provider they all do business with. This changes however in November 2012, when the Employee Choice Accounts comes into effect, which gives employees the ability to choose their own MPF provider and puts pressure back on companies to improve their costs and service quality in order to attract these new clients.
Manulife, who have been active in Hong Kong's pensions market for over 75 years, have ramped up their recruitment efforts
for MPF agents partially in response to this long-expected development. The Canadian firm has planned to increase their agency force from their 5,000 agents at present to a staff of 7,000 by 2015. Manulife is currently the number two insurer in the MPF market, with an estimated 17.6 percent market share. With an increased sales force, the company expect to raise their share to over 20 percent by 2016, which will put them in a better position to compete with market leader HSBC.
Manulife commissioned a survey from the Nielsen Company last year to analyze Hong Kong consumer attitudes towards retirement planning and investment. Over a thousand phone interviews were conducted with local employees, all aged between 20 and 54, with questions ranging from consumer aspirations to specific brand satisfaction levels. Of the survey participants, 15 percent were Manulife MPF members while the remaining 85 percent were enrolled with other MPF service providers.
The survey revealed some interesting contradictions about Hong Kong consumer behavior. Although 81 percent of respondents claimed that their pensions would not be able to cover the costs of inflation and rising living expenses once they stopped working, only 22 percent had even considered additional retirement planning, and of this segment most admitted to doing nothing to prepare as of yet. In fact, Manulife found that fewer than 40 percent of their Hong Kong respondents had actually made any inroads into their retirement savings plans. On average, respondents began such planning at the age of 43 for a retirement they expected only 13 years later, by age 60. These findings indicate a considerable gap in average consumer aspirations and their savings capacity in Hong Kong
, something MPF providers should look to address.
"Hong Kong's working population looks for financial security in their retirement years and making better use of the MPF system will help them achieve this," commented Luzia Hung, Manulife VP of Employee Benefits, adding that these contributions "can play a crucial part in facilitating a comfortable retirement if they manage them more pro-actively or seek professional support." It is important to note that before the implementation of the MPF Scheme, only about one-third of the Hong Kong workforce had any form of retirement protection.
Despite the importance of proper MPF planning, most Hong Kongers appear reluctant to manage and scrutinize their portfolio properly. Manulife's survey exposed that more than half of Hong Kong's workers have never properly reviewed or made adjustments to their MPF portfolio, with 45 percent of respondents further claiming that they were too busy and didn't have the time, or simply never made the habit of checking up on their investments. A general lack of knowledge about proper MPF portfolio management was also cited as a key reason for the low level of engagement in savings preparation.
What can be done to encourage more Hong Kong workers to be proactive with their retirement planning and investments? Manulife's survey found that a lot of consumers are looking for more simple and hassle-free MPF investment solutions, with nearly 40 percent of the respondents showing some preference towards target date funds. Target date funds are a type of mutual fund that provide simple investment options through a portfolio with an asset mix handled by professionals that automatically works to become more conservative and stable as the target date, in this case retirement, approaches. These types of funds are well suited to clients who are either too busy or otherwise unwilling to constantly monitor and re-balance their MPF portfolio, and are thus perhaps ideal for Hong Kong's busy workforce. Amongst those who routinely engaged with their MPF portfolio 72 percent agreed that target date funds are useful. This sentiment shared by the 34 percent of respondents who claimed they did not have time to review their investments. "The results indicate that Manulife is on the right track with introducing the target date fund type on its MPF platform," noted Ms Hung.
Manulife took home several other lessons from this study, and they were largely positive. The Canadian firm ranked top in terms of overall brand satisfaction versus the other major MPF service providers in Hong Kong, with its convenient online service platform, easy to understand MPF benefit statements, extensive communication channels, and comprehensive fund choices all proving particularly popular with respondents. In addition to this, 38 percent of those polled expressed satisfaction with the performance of Manulife's many MPF intermediaries, highlighting the company's agency model as one of its major competitive edges helping to distinguish itself from other market players, a positive reflection on the company's agency expansion strategy. "As a trusted retirement partner of the people of Hong Kong, Manulife will continue to enhance its MPF platform and services to help members better manage their retirement investments," Ms Hung concluded.
Solving Hong Kong's pensions issue will be a crucial issue going forward. The city-sate has a rapidly ageing population
. In 2010, the proportion of Hong Kongers over the age of 65 was around 13 percent. By 2040 the number of seniors is projected to rise to over 28 percent due to low birth rates and increased life expectancy. Life expectancy in Hong Kong is already much greater than the global average, at 86 for women and nearly 80 years for men. According to the HK government, the number of working age adults for each person over 65 will fall from six to one now to close to two to one by 2040. This ageing population means the country's workforce will have a much larger number of retirees to support in the future, and unless smarter retirement planning and pension schemes are implemented this burden could prove too great to bear.
Insurance Company Mentioned
Manulife (International) Limited is a member of the Manulife Financial group of companies. Manulife Financial is a leading Canadian-based financial services group serving millions of customers in 22 countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and primarily through John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners.