Default Investment Strategy

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What is MPF Default Investment Strategy?

The MPF Default Investment Strategy (“DIS”) is a new legislative requirement, which requires every MPF scheme to provide the DIS to members with effect from April 1, 2017.

Each MPF scheme is required to provide two constituent funds, indicated as the Core Accumulation Fund and the Age 65 Plus Fund. These two constituent funds will be invested globally in a diversified manner, but their risk exposure is different due to the difference in the composition of higher risk assets (such as equities) and lower risk assets (such as bonds and money market instruments).

The charts below show the target asset allocation of these two constituent funds in terms of higher risk assets and lower risk assets as required by law. Please note that the actual distribution in higher risk assets and lower risk assets at any time may deviate from the target asset allocation, up to a maximum of plus or minus 5% mainly due to market fluctuations.

The Core Accumulation Fund and the Age 65 Plus Fund are subject to fee caps by law, with management fees and recurrent out-of-pocket expenses not allowed to exceed 0.75% and 0.2% respectively of the net asset value of these two constituent funds on a yearly basis.

DIS allocation percentages and annual de-risking

The DIS will be invested in the Core Accumulation Fund and the Age 65 Plus Fund according to a member’s age.

Under the DIS, new contributions (including transfer-in monies) will be automatically invested according to the allocation percentages stated in the table below. When the member gets older between the ages of 50 and 64, new percentages will automatically apply each year.

Existing accrued benefits investing in the DIS will also be automatically adjusted once every year when the member is between the ages of 50 and 64 in order to meet the allocation percentages among the two constituent funds stated in the table below. The adjustment will be carried out by way of fund switching between the Core Accumulation Fund and the Age 65 Plus Fund.

The automatic adjustment on the investment of existing accrued benefits to gradually reduce the investment in the Core Accumulation Fund and increase the investment in the Age 65 Plus Fund is called “annual de-risking”. The annual de-risking will be carried out automatically on the date of the member’s birthday (or the next available dealing day if such date is not a dealing day) regardless of the prevailing market conditions.

Eventually, all accrued benefits and new contributions (including transfer-in monies) will be invested in the Age 65 Plus Fund when the member reaches the age of 64.

 
DIS de-risking table

The above allocation percentages will apply to existing accrued benefits on the date when the annual de-risking is carried out, however the percentages of investment among the Core Accumulation Fund and the Age 65 Plus Fund may vary at any other time during the year due to market fluctuations.

DIS as the default investment arrangement

The DIS will be the default investment applying to any type of new MPF account set up on or after April 1, 2017 without any investment instruction given by the member.

For example, when an employee ceases employment, the accrued benefits in the contribution account during employment may be transferred to a Personal Account. If the Personal Account is a new account set up on or after April 1, 2017 as a result of automatic transfer of accrued benefits from the contribution account, the DIS will be applied to the Personal Account as the investment instruction for future transfer-in monies from another scheme unless the employee has given an investment instruction otherwise.

If you already have an MPF account set up before April 1, 2017, please read the section “Impacts to MPF accounts set up BEFORE April 1, 2017” below to learn more about whether you will be affected.

DIS as one of the investment options

The DIS is also available as one of the investment options. Members can choose to invest in the DIS or choose any of the constituent fund(s) and specify their own preferred allocation percentage in each constituent fund. If members choose the DIS, the contributions (including transfer-in monies) made to their account will be invested according to the DIS allocation percentages and annual de-risking mentioned above.

Besides, members may choose to invest in the Core Accumulation Fund and/or the Age 65 Plus Fund separately by specifying their own preferred allocation percentage(s). In this case, the annual de-risking will not apply.

Risks associated with investing in the DIS

The DIS does NOT guarantee the capital and investment returns and members may suffer from loss on their investment in the DIS. Due to the characteristics of the DIS, there are risks associated with investing in the DIS such as:

  • The DIS does not take into account factors other than age, such as market and economic conditions nor a member’s personal circumstances including investment objectives, financial needs, risk tolerance or likely retirement date.
  • The Core Accumulation Fund and the Age 65 Plus Fund each must follow the prescribed asset allocation in higher risk assets and lower risk assets at all times and thus it will limit the ability of the investment manager to adjust the asset allocation in response to sudden market fluctuations. In addition, the investment holdings in each of these two constituent funds may have to be continuously rebalanced, i.e. sell and buy, in order to meet the prescribed asset allocation regardless of the views of the investment manager.
  • The annual de-risking which involves redemption and subscription will normally be carried out on the date of a member’s birthday (or the next available dealing day if such date is not a dealing day) regardless of the prevailing market conditions.
  • The DIS may incur greater transaction costs than a constituent fund with more static asset allocation due to the potential rebalancing between higher risk assets and lower risk assets and the annual de-risking.

Whether members are investing in the DIS or any of the constituent funds, they may change their investment at any time to meet their changing needs.

Annual de-risking and other instructions

When one or more instruction(s) such as subscription, redemption and/or switching instructions are to be processed and with units to be issued by and/or redeemed from or monies to be invested to and/or withdrawn from the constituent fund(s) in respect of a member’s account and such day is also the day of annual de-risking, both these instruction(s) and the annual de-risking will be processed on the same dealing day with the annual de-risking takes place after processing these instruction(s).

Impacts to MPF accounts set up BEFORE April 1, 2017

 
Learn more

Communication to customers

We will notify employers and members by post about the implementation of DIS and changes made to the MPF scheme which they are participating in. The mailing of such notice will start from the second half of December 2016 to the end of January 2017 by batches.

If you have any queries on your MPF account with us, please call our Dedicated DIS Hotline on (852) 2108 1290 or our Member Hotline on (852) 2108 1388 (service hours: Monday to Friday 9am - 6pm, closed on Saturday, Sunday and Public Holiday).

The information above is intended to provide a brief summary about the MPF Default Investment Strategy (“DIS”) and the possible impacts on your MPF account for reference only and you should not make your investment decision based on such information alone. Please refer to the Offering Document and other materials below for details of the DIS and other related information.

Warning: Investment involves risks. Please refer to the Offering Document for details including risk factors, fees and charges of the scheme.