Chairman of Mandatory Provident Fund Schemes Authority Ayesha Macpherson Lau attends the Straight Talk show on TVB, April 11, 2023. (PROVIDED TO CHINA DAILY)

Mandatory Provident Fund Schemes Authority Chairman Ayesha Macpherson Lau is on the show this week.

Macpherson Lau says MPFA performance has in general improved over the years, and that the eMPF platform to be launched will enhance adequacy as well.

Check out the full transcript of TVB’s Straight Talk host Dr Eugene Chan’s interview with Lau:

Chan: Good evening! Thank you for joining us on Straight Talk. Our guest this evening is Ayesha Macpherson Lau, the chairman of the Mandatory Provident Fund Schemes Authority. Lau is a certified public accountant, and she was a managing partner at KPMG, where she started her professional career. Currently, Lau holds government appointments on several finance advisory bodies, including the Hong Kong Monetary Authority, and has been an accounting adviser to the Ministry of Finance of our central government since 2016. This evening, we will be discussing the significance of the Mandatory Provident Fund or MPF to Hong Kong people's retirement. Welcome, Ayesha.

Lau: Hello, Eugene, thank you for having me. 

Chan: Right. Let's start our first question on the topic of the show, it’s “How significant is MPF to Hong Kong people's retirement?” I understand that 4.7 million Hong Kong people are your members. So, how significant is it?

Lau: Significant, very. Because the MPF system is designed to provide basic retirement protection to the working population of Hong Kong. It helps Hong Kong people save throughout their working lives and build a nest egg for retirement through long-term investment. Now, before the MPF system was introduced in December 2000, only about 1/3 of the working population was covered by retirement schemes. Today, the working population is almost fully covered by retirement schemes. So, that means it's very important because like 4.7 million people are covered. 

Chan: But is it an effective way for people's retirement?

Lau: It is effective. And I would like to also share with the viewers that in fact, today, the MPF assets amount to HK$1.1 trillion. So, it's materially higher than even the government reserves. And this pool of resources is an effective means to provide the working population with basic retirement protection.

Chan: Right. I see last year the Manulife Hong Kong, which is one of the MPF biggest providers, did a survey. And they found that Hong Kongers would like to have about like HK$21,000 per month for retirement for something like 73 percent of the average current salary. But in reality a lot of them actually, when it comes to retirement from their own savings, they only have about HK$10,000 per month, which is like 1/3 of their current income. So, how accurate is that? And also, how much can MPF top up from HK$11,000 to over HK$20,000? Is it possible?

Lau: Well, the MPF is intended to provide basic retirement protection, it is one of the protection mechanisms in the multi pillar framework recommended by the World Bank. So, MPF alone cannot provide a full retirement protection, it must work with and complement the other pillars such as personal savings, social safety net and government services, such as medical and housing in order to provide a full retirement protection. But the MPF is doing its role in providing a basic safety net in protection retirement. And we are continuously working on enhancing adequacy so that we can help our scheme members to build a bigger nest egg for retirement.

Chan: Right. Ayesha, you just said that to retire with the full amount that you're aiming for, like over HK$20,000 per month for the average worker, you need apart from MPF, you need other savings as well. So, do you have a figure for the viewers that how exactly, how much will MPF contribute to that extra bit of income to say HK$10,000 from your own savings to the HK$20,000, do you have any percentages you can just share with us?

Lau: Well, I think it is difficult to give you a one figure which would be applicable to all our scheme members because Eugene as you mentioned at the start of this program, we have 4.7 million scheme members covering people from all walks of life, all professions and also their own family background would be very different. So, their needs will be very different, their goals or retirements will be very different. So, I don't think it is possible to give you one figure on how much a person would need for retirement. But what I would like to come back to is the effectiveness of the MPF system itself in providing this basic retirement protection for the whole of Hong Kong's working population.

Chan: Right, since you just mentioned having the MPF alone isn't going to be enough for one's retirement, then what are the actual benefits? Because would it be better off by setting up their own retirement plan, that they have more flexibility and control? What do you say to that?

Lau: I would say that the MPF system is designed to help the Hong Kong working population to develop investment saving discipline, by making regular contributions and savings every month, putting aside a small amount of money from their income every month, and investing. Now many people don't really fully appreciate the effectiveness of this regular savings, that putting aside a small amount each month, at the end of the day. And of course, MPF is actually savings over decades. So, doing this regularly over decades, will give you actually a very good lump sum at the end of the day. So, by making this a regular savings and also within the MPF system is a very safe and structured system to allow your investment into appropriate assets that are tailored for retirement savings and investments.

Chan: Right as the chairman, I'm sure you'd like people to contribute more than the compulsory 5 percent to the fund to make it more viable for retirement. But maybe many people will say, “I still want to have my own control on the money and how we want to plan it”. And when what will be ... how will you encourage our viewers to put more than the compulsory 5 percent? What will you say to them?

Lau: Yes, in fact, the MPF system offers almost full control to our scheme members in terms of investment. So, our scheme members have over 400 MPF funds to choose from, they can actually select which funds to invest in depending on their investment goals, etc. Also, they can switch schemes, we currently have 27 schemes and scheme members can, to a certain extent, switch schemes by their own selection. So, there are three ways to do that. One is the employee choice arrangement where they can once a year switch the accumulative benefits from the employee mandatory contributions to another scheme. And also, they can switch schemes anytime on the accumulated benefits on their personal accounts and also on their tax deductible voluntary contributions accounts. So, there's actually in terms of investment that's complete flexibility, and a lot of choices.

Chan: Right? So, how about for those people who are self-employed, or they work in industries where MPF contributions are not compulsory, for example, what will you say to them?

Lau: The self-employed MPF contribution is also compulsory. I think that is one of the misconceptions of our system, because the MPF legislation mandates for everybody in the workforce, whether the employed or the self-employed, to make contributions into the system. Now, I would like to go back to the point about the importance of voluntary contributions and why the MPF's scheme also, apart from the mandatory side, also offers a very good option for asking members to consider making additional voluntary contributions. It's because of the robustness of the system. It's a proven retirement savings and investment system. And with the choices that I've just mentioned, in fact, scheme members should really consider making additional voluntary contributions. Now, on this point, I'm very pleased to say that we've seen a significant increase in voluntary contributions for the… say for example, in the past 10 years, we've seen an increase of 112 percent in terms of the amount of voluntary contributions.

Chan: Right. So, chairman, while you're saying that everything is going well for the MPF members, let me ask you, because MPF has been criticized for having its high fees, because it could erode its retirement savings. So, what measures under your leadership have you done to address that problem?

Lau: I fully appreciate scheme members' concerns about fees and agree that fees could come down more. But in fact, in recent years, we have introduced many measures, with the aim to reduce fees and encourage more competition in the industry. And also on this point, I want to also thank the MPF industry for their cooperation because working together in fact, fees have come down, really quite materially for the past 15 years. It has come down more than 35 percent already. Currently, the average fee is 1.34 percent. And in fact, of the over 400 funds, about half, actually more than half charge fee, an average fee of below this average of 1.34 percent. And …

Chan: That sounds a lot more reasonable. 

Lau: Yes, and then one third charge less than 1 percent. But we're not satisfied. We know ... 

Chan: Good.

Lau: … we need to keep on going and work together with industry to keep reducing the fee. And currently, we're working on the eMPF platform project.

Chan: Alright, okay. 

Lau: And with the introduction of eMPF, we're expecting another material reduction in fees.

Chan: Chairman, before we go to the break, I want to ask you something directly because MPF investment performance for 2022 was second worst, since the exception of 20 odd years ago, reporting a loss of HK$260 billion in the first nine months. On average everyone's nest egg that you mentioned we lost about HK$40,000. But just a few days ago, I've been reading the news that your best quarterly result in four years has happened like 4 percent, which was a great turnaround. So, what will you say about the outlook for the rest of 2023? What is it, in your view?

Lau: For the first point I would like to make is that MPF investment is a very long-term investment, on average over 40 years. So, for such a long investment period, it's bound to encounter market fluctuations. And I would encourage scheme members not to be too concerned, not to be overly concerned about short-term market fluctuations. Because if you look back at the history of the MPF, of the 22 years that it's been in existence, 14 years we have achieved positive returns. And for the rest of those periods, years where there were negative returns, the following year has always been a rebound. And I think that...

Chan: So, what's the outlook for 2023?

Lau: Okay, I don't have a crystal ball. But what I want to share is that in the first quarter right now, for the first quarter, or for the period, since inception, to right now, the net return that is after deduction of all fees is 2.5 percent, which is comfortably exceeding the same period annual inflation rate of 1.8.

Chan: Okay, chairman, let's take a break now. And viewers do stay with us, we will be right back.

Straight Talk's Eugene Chan (left) interviews Chairman of Mandatory Provident Fund Schemes Authority Ayesha Macpherson Lau on April 11, 2023. (PROVIDED TO CHINA DAILY)

Chan: Welcome back. We have been talking with Macpherson Lau, the chair of MPFA, about the fund and its significance to Hong Kong's people’s retirement. We have also discussed its effectiveness and how this can be improved. So, Chairman, we touched on the fact that you are continuously working very hard to reduce the fees, so that there are more funds available to the members. And you talked about the… out of the 23 years, most of the time we are doing well, and hopefully the same will happen to 2023, although we don't have a crystal ball. You just mentioned earlier that about the fund, about the Pillar 2, that you mentioned. See, it is still a relatively young fund, and we know that a pension fund would take like 40 years to reach a size and a scale that allows every member to enjoy the full benefits. So, if a person in their 20s starting working, at the same time joining the MPF, then they retire in their 60s, so they were to complete the full cycle of the scheme. But how about for those people who are already in 40s when the scheme started, they won't be able to reap full benefits. So, what should people in this situation do, because it’s still like 20 more years for the plan? What would you suggest them to do?

Lau: You are correct, Eugene, that MPF was introduced in December 2000. So, we are 22 years old around, and with international experience tells us that it takes around 40 years for retirement scheme to mature, so we are only about halfway past the growth in the MPF system. But the system is designed to provide basic retirement protection for member who has saved and invested in the system for, on average, about 40 years. So, while our aim is to enhance and refine the system, with that target in mind to help someone who has been in the system for the full time of this period. Now I need to go back to the point that even so the MPF is one pillar of a multi-pillar retirement protection framework as recommended by the World Bank. Even for someone who has been in the system for the full period of time, that person still needs to have other protection, savings. For example, like personal savings. And for the people with more basic needs, then they still need to rely on the government social safety net, and also other social services.

Chan: Chairman, you talked about safety of the funds, so you always use the word ‘integrity’, also use the word ‘sustainability’. So, under your leadership, how confident are you going to tell Hong Kong people that our funds are going to be very safe, and you can put your money in without any worry? Would you say that?

Lau: I would say that I would have every confidence about the security and effectiveness of the MPF system. But I am not just saying that for myself, right? You don’t have to just trust me, right? This assessment is actually made based on the World Bank’s outcome base assessment framework. So, there are 5 areas that this framework looks at. And Hong Kong does very well on this World Bank framework, in terms of coverage because almost everybody is covered, in terms of security because of our strong regulatory system, and also with protection, a strong members protection included. Now in the areas of adequacy and efficiency, there is area for improvement, and that is why we have measures in place, we are working off measures to enhance those 2 areas.

Chan: Right. Chairman, quickly, people who are… I am sure many viewers do have their MPF fund, what will be your advice to them for the general management of the MPF fund? What will you ask them to do?

Lau: Okay, I would recommend scheme members to take an interest and review their MPF investment regularly. And there are actually a lot of tools, digital tools, offered by the MPFA, to help members do so. So, for example, we have the MPF fund platform, which tells you all the information about the performance and fee charges of each of our over 400 MPF funds. There is a retirement calculator on our website, so you just punch in some of your basic personal information and your expectations of retirement, and our calculator will tell you how much you need to save every month in order to reach that goal, but to your retirement.

Chan: I will certainly do it after the show myself.

Lau: Yes, it is really fun, try it out.  And there is also the trusty service comparative platform, which tells you on one platform all the services provided by the trustees and the 27 schemes.

Chan: Right. Let's move to another area that is indirectly related to MPF, that is the cancelling of the offsetting mechanism. It was a set-up to help the employers to pay their severance or long service to their workers, but it is going to be scrapped from 2025. And I am sure, as we speak earlier, that is going to help the fund to be even more healthy. But what is its implication to the SMEs? Will it be causing a lot of stress to them? What is your view on that?

Lau: The MPFA view is that we welcome the abolition of offsetting because without doubt, the offsetting arrangement has led to leakage of MPF assets and has weakened the retirement protection of the MPF system. So, with the abolition of offsetting, it will mean that scheme members will have more assets left in the MPF system for accumulation, and will also enhance the overall retirement protection of the MPF scheme. So, overall, we welcome the abolition of offsetting.

Chan: Right.

Lau: I am also confident that with the abolition of offsetting, as well as the eMPF platform that we are working on, and together with other enhancement measures, the MPF system will become an even better retirement protection system for the people of Hong Kong. 

Chan: Right. Chairman, before we move to the eMPF, I am going to pay some tribute to your work because I am very pleasantly surprised to hear that the MPF actually ranked number 2 in Asia, behind Singapore last year, which is a good achievement for a fund that’s about 23 years old. And our overall score was actually only 64.7 over 100, while our MPF scored a big improvement in adequacy, compared to 4 years ago. But it is still under the global average. So, does it reflect the very low contribution rate of 5 percent that we talked about before?

Lau: Well, I think we are talking… moving on to the question of adequacy.

Chan: Yes.

Lau: Yes. When we talk about adequacy, then we are talking about how much money can a scheme member save through this MPF system. Now working on enhancing adequacy is a priority of our work at the MPFA, so, working with several areas. One is to encourage…oh, sorry, to enhance investment returns, higher returns, we want higher returns, right? Second is to reduce fund fees, we want to reduce costs, okay? And then third is we need to maintain the mandatory contributions level to make sure that we put in sufficient amount in order to grow and invest. The fourth element is voluntary contributions, we also need to encourage more voluntary contributions. The 4 areas we need to continue to work on, in order to give our scheme members even better protection, and making sure that the end result, the nest egg at the end can be bigger.

Chan: Right. Chairman, I have also done some homework. Singapore contribution total is 37 percent, whereas Malaysia is 23 percent, Hong Kong is only 10 percent. So, how would you encourage more people to contribute more to the fund so that we get closer to the 37 percent, or even 23 percent from Malaysia? What would you do?

Lau: Yes, correct, the mandatory portion of the MPF scheme is basically 5 percent from employer and 5 percent from employee. And of course, currently employees earning monthly salary, which is below the minimum relevant income level, they don't actually make even make that 5 percent contribution, it is only 5 percent from employer. However, the government has already said that government will be making that payment, that 5 percent contribution of the employees’ portion for low income employees very soon. In fact they have said that they will do so with the full operation of the eMPF platform. That is very good news because that is enhancing adequacy, in particular for low income scheme members.

Chan: Right. Chairman, we have only one minute left, but I’d like you to talk about the eMPF, although it is not a lot of time. Do tell the viewers what is it and how it is going to benefit all of us.

Lau: So, the eMPF is the biggest reform of the MPF system since its introduction. It will bring about a complete overhaul of the administrative side of the MPF system, and also bring about a digital transformation for Hong Kong people, for the better. In a nutshell, it is about improving efficiency of the system and reducing costs. Key benefits to our scheme members will include a material reduction in the administration fees, and also enhancing user experience.

Chan: Right. Thank you, Ayesha, for explaining to us the importance of planning and starting contributions early in our working life. We hope that Hong Kong people will be able to benefit from the full potential of MPF for their retirement. Thank you for watching and see you next week.