The need to save for retirement is never very apparentin a city like Hong Kong that offers little support. The lack of a universal pension system and steep living costs mean only the well preparedcan enjoy a decent retirement.In 2000, Hong Kong government implemented the Mandatory Provident Fund (MPF) – a compulsory pension fund designed as a major retirement protection scheme. Most employees and their employers are required to contribute monthly and the fund is completely managed by the private sector. An estimated 2.5millionpeople are at present members of the scheme. At the end of March 2014, the total assets held under MPF scheme were HK$ 517.4 billion.
MPF has been subjected to criticism due to high costs and poor performance. It is expected that MPF funds will only notch up a return of 3% for the year 2014; far lower than its 2013 annual return of 8.09%.
The 2.55 percent return from Jan 2014 to Nov 2014, falls substantially short of the 4.3% inflation rate in the same period.
ASluggish Hong Kong equities market, faltering European economies and the effects of Abenomics in Japan are some of the top reasons contributing to the lackluster MPF performance.
Average rate of return from inception reported by the MPFA is 5.5% after fees and charges. After adjusting for inflation, the rate of return is 4.8%. Since the member chooses the asset allocation in each account, there will be wide variations around the average rate. The below chart gives the annual rate of returns over the past 10 years.
When you retire, it will not be how much you have earned during your working lifetime that will be important, but how much you have saved.According to recent survey commissioned by MPFexpress, 79% of respondents believe they need at least HK$5 million for retirement, yet 66% of respondents save 15% or less of their monthly income for retirement, while close to 90% of them spend little or no time managing their MPF accounts.
Contact Dino Zavagno’s team of retirement planning specialists at Gladstone Morgan to explore retirement planning solutions other than MPF that suit your needs and help you build a nest egg large enough to see you through retirement at info@gladstonemorgan.com
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