Default Investment Strategy

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What is MPF Default Investment Strategy?

Quick guide to Default Investment Strategy

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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 exposure to higher risk assets and correspondingly increase the exposure to lower risk assets as the member gets older 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

Age

Core Accumulation Fund

Age 65 Plus Fund

Below 50 100% 0%
50 93.3% 6.7%
51 86.7% 13.3%
52 80.0% 20.0%
53 73.3% 26.7%
54 66.7% 33.3%
55 60.0% 40.0%
56 53.3% 46.7%
57 46.7% 53.3%
58 40.0% 60.0%
59 33.3% 66.7%
60 26.7% 73.3%
61 20.0% 80.0%
62 13.3% 86.7%
63 6.7% 93.3%
64 and above 0% 100%

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 existing members with 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) (including the Core Accumulation Fund and the Age 65 Plus Fund as standalone investments) 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.

If members choose to invest in the Core Accumulation Fund and/or the Age 65 Plus Fund as standalone investments by specifying their own preferred allocation percentage(s), 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 existing members with MPF accounts set up BEFORE April 1, 2017

Below only covers a few common scenarios for reference and they are not exhaustive.

If you have any MPF account set up before April 1, 2017, please read the information below. You are also reminded to ensure the address record of your MPF account is up-to-date so that you are able to receive our notice/letter.

Members who will receive “DIS Re-investment Notice”

  • If you have not given any investment instruction for your MPF account and ALL of your accrued benefits are invested in the default fund of the MPF scheme immediately before April 1, 2017, you should receive two mails of the “DIS Re-investment Notice” and the “Offering Document of Manulife Global Select (MPF) Scheme” by post from around April 10, 2017 to April 28, 2017. When you receive the “DIS Re-investment Notice”, you should read the information thoroughly and consider your investment choice carefully. If we do not receive your written reply before the date stated in the notice and as the amount to be withdrawn from the existing default fund at any time will not be less than the value guaranteed (as mentioned in the Offering Document), ALL of your accrued benefits invested in the existing default fund will be redeemed and re-invested into the DIS regardless of the prevailing market conditions. In most cases, the investment instruction of your MPF account for future contributions (including transfer-in monies) will also need to be changed to the DIS.
  • You should be aware of the differences between the existing default fund and the DIS and you will be exposed to higher investment risk as a result of reinvestment of your accrued benefits and future contributions (including transfer-in monies) into the DIS.
  • If you want to keep your existing investment arrangement instead of changing to the DIS, you should take prompt action and complete the Option 2 Form enclosed with the “DIS Re-investment Notice” and return it to us by post or by fax on (852) 2104 3504 by the due date stated in the notice. If you return your reply by post, please allow sufficient time for postal delivery to ensure your form can duly reach our stated address before 6 pm (Hong Kong time) on the due date.
  • In case you are in doubt that you may have missed the DIS Re-investment Notice due to your address has been changed, or due to other reasons, and you still have not received such notice by May 5, 2017, please contact our Dedicated DIS Hotline on (852) 2108 1290 as soon as possible.

Members who will receive a letter to review investment mandate

  • If you are holding a Personal Account set up as a result of an automatic transfer of your accrued benefits from a contribution account due to cessation of former employment or self-employment, normally the investment instruction for future contributions (including transfer-in monies) for your Personal Account was carried over from your previous contribution account. If you have not given a new investment instruction to the Personal Account, we will need to change it to invest in the DIS on April 1, 2017 and that means any future transfer-in monies made to the Personal Account will be invested in the DIS. These members should have received a letter stated “Review the Investment Mandate for your MPF Member Account” in February 2017 informing them to review their investment mandate.
  • If you want to keep your existing investment arrangement instead of changing to the DIS, you should take prompt action and complete the reply slip enclosed with the letter and return it to us by post or by fax on (852) 2104 3504 before April 1, 2017. If you return your reply by post, please allow sufficient time for postal delivery.
  • However, if only part of your accrued benefits in your Personal Account is invested in the default fund immediately before April 1, 2017, your account will not be affected.

Members not affected or exceptions

  • If you have given an investment instruction for your MPF account and your accrued benefits are invested according to your instruction, or you have reached age 60 before April 1, 2017, your MPF account will not be affected by the implementation of DIS.
  • There are also some exceptions. For example, if all or part of the accrued benefits in your MPF account are transferred from another MPF scheme due to scheme restructuring and your accrued benefits are not wholly invested in the default fund, both your accrued benefits and the investment instruction for future contributions (including transfer-in monies) will not be affected.

Use of new administration forms after the implementation of the DIS

With effect from April 1, 2017, some of the administration forms will be revised. In particular, employers and members are reminded to use the new enrolment/application forms and the new investment instruction/fund switching form with the investment choice of DIS included. Letters have been sent to employers in March 2017 informing them about the new administration forms.

Starting from April 1, 2017, you can go to Forms and Publications (Employer, Employee , Self-employed Person) under MPF to download the new administration forms.

Communication to customers on the changes to the MPF scheme

The “DIS Pre-implementation Notice” together with the “First Addendum to Offering Document”, “Important Note” and DIS flyer have been mailed to all existing employers and members by batches during the period from the second half of December 2016 to the end of January 2017. You are reminded to read the documents thoroughly to understand the DIS and the changes made to the scheme.

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.

You may also visit the website of the Mandatory Provident Fund Schemes Authority at www.mpfa.org.hk for more information about the DIS.

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