HONG KONG - The Mandatory Provident Fund has failed in its task to encourage additional savings, but pending legislation to encourage members to move their assets into other savings vehicles will do just that, said RCM.
RCM chief executive officer of Asia Pacific Mark Konyn said: "(It) was never the fund's intention to be the only source of funding upon retirement. It was supposed to encourage saving towards retirement and provide one source of financial support on retirement. I think in that sense it hasn't achieved its objective in encouraging towards additional savings."
However, pending legislation will decrease dependence on the MPF, he said.
The Employer Choice Arrangement will allow members to move their accumulated contribution from MPF to other schemes at least once a year, providing them with more choice around how their assets are invested. Currently, employees contribute 5% of their earnings to the MPF, with employers matching an equal amount. The employer's contribution would not be withdrawn.
"We've been advocates of choice from day one. We would like to see more choice in place; the challenge is how to get to that point. It is looking like it's going to be an incremental process of making amendments to existing structure," Konyn said.
The legislation was set to be implemented in April this year but was delayed due to rising concerns over the complexities it will cause in administration. Konyn said some employers are worried the initiative presents too much choice to the employees and will overwhelm them.
Konyn added: "Effectively what the ECA is trying to achieve is a morphing to the original system. Initially the government was organised under a corporate system, so we are now trying to morph into an individual system more like Australia's or similar to Singapore's. We are trying to create this hybrid where you've got governance control at the employer level but choice being given to the individual to choose any scheme. This has caused a number of conflicts in administration and training in service providers and sales people."
Nevertheless, the pressure has built on employers to provide more choice and the authorities to change legislation. The legislation is still pending but expected to come into effect at the end of 2011.
This week's edition of Professional Pensions is out now.
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