MPF Savings - PowerPoint PPT Presentation

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MPF Savings

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Tax Concessions Employers ... Responsible for regulating the securities and futures markets in Hong Kong Supervise the ... (Benefit Factor x final salary x ... – PowerPoint PPT presentation

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Title: MPF Savings


1
MPF Savings
  • What is the "best" solution for a bright and
    stable future after retirement ?

2
Present By Group 4 members.
  • Christine
  • David
  • Lit
  • Nick
  • Patrick
  • Priscilla
  • Taylor

3
Major Components
  • INTRODUCTORY ABOUT MPF
  • BASIC INFORMATION ON HK MPF
  • CASE STUDY EMPHASIS ON RETURN
  • REGULATIONS ON MPF FUNDS OPERATIONS
  • CLIENTS SELF MANAGEMENT
  • COMPARSION BETWEEN CHILE AND SINGAPORE PENSIONS
    FUND SYSTEM
  • CONCLUSION

4
INTRODUCTORY ABOUT MPF
5
What is MPF?
  • Compulsory retirement benefit plan
  • Implemented on Dec 1 2000
  • Regulate and monitor by MPFA

6
Previous Form of Pension Fund
  • Two types of Provident Fund
  • Defined-benefit scheme
  • Defined-contribution Scheme

7
  • Defined-benefit Scheme
  • (Benefit Factor x final salary x years of
    service)
  • benefit factor - determine by the years of
    service

8
  • Defined Contribution Scheme
  • -contribution amount is fixed ratio
  • Included two parts
  • -whole contribution amount by employees -parts
    of accumulated contribution by employers

9
Disadvantages of Pension Funds
  • Shirking responsibility from the employers
  • improper management and supervision of Provident
    Fund

10
The process to the development of MPF
  • 1993 Oct 15 gtimplement ORSOgtdeal and supervision
    on voluntary Pension Fund
  • 1994gtAverting the Old-Age Crisis report gtsuggest
    MPF
  • 1995 Aug 3 gtapproved the Mandatory Provident Fund
    Scheme Ordinance
  • 1998 Margt amended parts of MPFCO and set up MPFA
  • 2000 Dec 1gt implemented the MPF

11
BASIC INFORMATION ON HK MPF
12
Types of MPF Schemes
  • There are three types of MPF schemes, they are
  • (1) Employer-sponsored Schemes (??????)
  • Target Employees of a single employer, company
    or group of associated companies.
  • (2) Master Trust Schemes (??????)
  • Target Employees of unrelated employers and
    self-employed persons.
  • (3) Industry Schemes (????)
  • Target Casual employees within certain
    industries of high labour mobility e.g. catering
    and construction.

13
Types of MPF Schemes
  • Employer-sponsored Schemes (??????)
  • Advantage Tailor-made according to specific
    requirements of the employer.
  • (2) Master Trust Schemes (??????)
  • Advantage Economical as costs are shared by all
    employers and members using the schemes.
  • (3) Industry Schemes (????)
  • Advantage Eases the administrative burden for
    employers in industries of high labour mobility.

14
Tax Concessions
  • Employers' contribution
  • MPF contributions are profits tax
    deductible, provided that the deduction does not
    exceed 15 of each employees yearly emolument.
  • e.g. 1 000 000 x 15
  • 150 000

15
Tax Concessions
  • 2) Employees' contribution
  • Mandatory contributions are income tax
    deductible, subject to the maximum amount of
    HK12,000 per year.
  • e.g. 300 000
  • Tax deductible amount
  • 240 000 x 5 12000

16
REGULATIONS ON MPF FUNDS OPERATIONS
17
Regulations on MPF
  • 1. Mandatory Provident Fund Schemes Authority
    (MPFA) (???)
  • Develop and supervise the system of MPF
  • Compliance with the MPFSO (?????)
  • Consider and propose reforms to the law relating
    MPF
  • Approve qualified persons to be approved trustees

18
Regulations on MPF
  • The Securities and Futures Commission (SFC) (???)
  • Responsible for regulating the securities and
    futures markets in Hong Kong
  • Supervise the collective investment products
    offered to public (Including MPF)

19
Regulations on MPF
  • The Office of the Commissioner of Insurance (OCI)
    (??????)
  • Ensure that the interests of policy holders are
    protected
  • make sure that those companies hold enough cash
    for compensation.

20
Regulations on MPF
  • The Hong Kong Monetary Authority (HKMA) (???)
  • Responsibilities to regulate operation of banks
  • some banks are acting as trustees, investing
    manager and underwriters for MPF

21
CLIENTS SELF MANAGEMENT
22
Clients Management on MPF Investment
  1. Know their trustees
  2. Know their needs
  3. Know the funds

23
Know their trustees
  • Financial conditions
  • (e.g. net assets value)
  • Good management
  • Adequate computer system
  • Adequate internal supervision system

24
MPF Clients needs
  • the length of life
  • cost of living
  • medical expenses
  • inflation
  • risk tolerance level
  • ( e.g.. age, personality, personal financial
    status, family)

25
Know the funds
  • Equities fund ? Capital guarantee fund ? Stable
    fund ?
  • the fund's launch date
  • Net asset value?
  • Asset allocation ?
  • the fees and charges

26
CASE STUDY EMPHASIS ON RETURN
27
Case Study
  • Situation
  • (1) Two people, named X and Y, have the same
    amount of monthly salary, 10,000. This would
    remain unchanged during their whole career. It is
    now 30 years from their retirement.
  • (2) Interest rate is being ignored.
  • (3) X put his MPF in American International
    Assurance Company (Trustee) Limited (AIA), and Y
    put his MPF in HSBC Institutional Trust Services
    (Asia) Limited (HSBC).
  • (4) 5 (500) of their salaries are put in MPF
    every month and the same amount (500) are also
    put by their employers.

28
  • (5) They are assumed investing under three
    different risk combination.

Fund investment combination Capital Preservation Fund Stable Fund Balanced Fund Growth Fund Hong Kong Equity Fund
Low risk investment combination 60 10 10 10 10
Medium risk investment combination 20 20 20 20 20
High risk investment combination 10 10 10 10 60

29
  • We are going to calculate
  • How much can X and Y receive after retirement
    under different risk investment combination ?

30
  • Their annual return rate are computed according
    to the recent return rate of one year and three
    year. Data are collected from MPF trustees
    quarter fund investment reports.

Performance of Fund (Return) Capital Preservation Fund Capital Preservation Fund Stable Fund Stable Fund Balanced Fund Balanced Fund Growth Fund Growth Fund Hong Kong Equity Fund Hong Kong Equity Fund
Performance of Fund (Return) 1 Year 3 Year 1 Year 3 Year 1 Year 3 Year 1 Year 3 Year 1 Year 3 Year
American International Assurance Company (Trustee) Limited 2.46 3.12 5.76 19.62 9.04 30.79 15.58 55.97 24.93 81.70
HSBC Institutional Trust Services (Asia) Limited 4.19 6.22 8.06 31.10 10.88 43.78 13.52 56.37 17.13 74.16
31
Calculation
  • Example
  • Assume X chooses a low risk investment
    combination of MPF.
  • The amount that A has put in MPF each year
  • (500500) 12 12000
  • The amount invested in Preservation Fund each
    year
  • 12000 60 7200
  • The amount of return that A can earn in Capital
    Preservation Fund each year (using 1 year rate
    of return)
  • 7200 (12.46) 7377.12
  • Then, we would sum up with the return in Stable
    Fund, Balanced Fund, Growth Fund and Hong Kong
    Equity Fund.
  • 7377.12 12000 10 (15.76) 12000
    10 (19.04) 12000 10 (115.58)
    12000 10 (124.93) 12,840.84

32

Fund investment combination Investor (Trustee) Total investment return after 1 year Total investment return after 3 years Total investment return after 30 years Total investment return after 30 years
Fund investment combination Investor (Trustee) Under 1 Year Return Rate Under 3 Year Return Rate Under 1 Year Return Rate Under 3 Year Return Rate
Low risk X(AIA) 12,840.84 43,444.80 385,225.20 434,448.00
Low risk Y(HSBC) 12,916.92 44,738.28 387,507.60 447,382.80
Medium risk X(AIA) 13,386.48 49,766.40 401,594.40 497,664.00
Medium risk Y(HSBC) 13,290.48 51,237.36 398,714.40 512,373.60
High risk X(AIA) 14,189.04 57,589.20 425,671.20 575,892.00
High risk Y(HSBC) 13,673.16 56,967.48 410,194.80 569,674.80

33
Findings
  • Combinations are based on different tolerance
    level of risk.
  • Trustee which has better performance in one
    combination does not imply it has better
    performance in other combinations.
  • Trustee which has better performance in one year
    does not guarantee it will have better
    performance forever.

34
Thought
  • According to the return rate of one year and
    three year,
  • it seems that investing more on the funds with
    higher risk can yield higher return.
  • But, is that we should put all the investment on
  • Hong Kong Equity Fund which has the highest risk?

35
  • Certainly Not!
  • The fluctuations of the return rate
  • over time
  • should not be overlooked.

36
Capital Preservation Fund
37
Stable Fund
38
Growth Fund
39
Hong Kong Equity Fund
40
Comparison between Chile and Singapore pensions
fund system
41
Why compare?
  • Pay-as-you go fails
  • Singapore Totally Centralized
  • Mandatory
  • Saves when Young
  • Chile Totally Privatized
  • Successful in making High Return

42
The Chilean Model
  • Link benefits to contributions
  • Pays totally owned by the worker
  • Capitalization scheme
  • Managed by competitive private companies called
    AFPs
  • Contribute 10 of pre-tax wages to personal,
    private accounts

43
Strength of AFP
  • Separate from the mutual fund
  • Free to change from one AFP to another
  • Hot competition among the companies
  • Return for these private accounts have been high
    -- around 10 a year

44
Reality about Chiles System
  • Helped fuel an economic expansion
  • Only half of workers are captured by the system
  • A rather large underground economy in Chile
  • Chile is far richer than it was prior to 1981

45
Reality about Chiles System (con.)
  • Generated a critical mass of capital
  • Increase workers' sense of ownership
  • an average 10 percent annual return on
    investments

46
Singapore model
  • Mandatory for workers
  • Savings program for retirement, home ownership
    and health care.
  • Offers 400 funds to participants
  • Caps applied to the funds
  • Total contribution of 40 percent of income

47
Singapore model
  • All compulsory saving are tax exempt
  • Important contributor to Singapore's savings rate
  • More comprehensive package of social insurance
    benefits
  • Must be invested in government bonds and in
    advanced deposits

48
Reality about Singapores System
  • No information is available on either the
    investment portfolio
  • Particular mixture of benefits that may not in
    fact suit their individual or family needs
  • No chink of competition
  • Enormous concentration of money and investment
    power in a single agency

49
CONCLUSION
50
Conclusion
  • Provident Fund gtMPF (1 December 2000)
  • 90 of the workforce cover
  • regular employees
  • causal employees
  • self-employed people

51
Conclusion
  • Different types of constituent fund
  • (a) capital preservation fund
  • (b) Hong Kong equity fund
  • (c) stable fund
  • (d) balanced fund
  • (e) growth fund
  • Things need to know in investment
  • (a) time value of money
  • (b) risks

52
Conclusion
  • Management of the MPF investment
  • trustees --settlors
  • Employees responsibility
  • select the portfolios of the fund
    according to their own needs

53
Conclusion
  • Case study -AIA and HSBC
  • Concerns
  • actual return of the MPF
  • personal risk tolerance
  • rate of return
  • the health of economy
  • any MPF may have the chance of getting lost

54
END OF OUR PRESENTATION
  • Thank you very much!
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