How to manage your MPF scheme
Mr Chan, 50, plans to retire in 10 years. He has switched jobs twice since the Mandatory Provident Fund (MPF) system was introduced in 2000, and has three MPF accounts. At first he treated the MPF as a savings scheme and paid little attention. This changed as he started planning for his retirement, when he felt he should increase the amount of money he needs to retire on. He wants to take a closer look at his MPF accounts, but not sure how he should manage his MPF accounts.
Where to start?
Are you like Mr Chan and want to improve management of your MPF accounts, but don’t know where to start?
Most people focus on the balance and performance of their MPF, and whether to adjust their MPF portfolio or switch to another scheme. The Employee Choice Arrangement (ECA) allows employees to move the accrued benefits derived from their contributions to another MPF scheme of their choice once a calendar year.
To start managing your MPF schemes, ask yourself the following questions:
1. What are your circumstances?
At different stages of life, the level of risk you can handle changes. Generally speaking, your risk tolerance may be lower compared with that when you are younger. When adjusting your investment portfolio of your MPF scheme, you may consider low risk funds such as bond funds, money market funds and guaranteed funds. For higher risk funds, such as those mixed assets funds with a high portion of equities or equity funds invested in a single region, you may have to reduce their weighting in the investment portfolio.
The MPF comprises just some of your retirement assets. When thinking of changes to your MPF portfolio, you should also take into account other investments to balance the overall risk and return to suit your need.
2. How is your MPF performing?
You can compare the services of different MPF providers, the choices of funds and the fees and charges. This will help you decide whether to switch to another scheme. You should look at long-term data (three to five years) rather than short-term (less than one year). Make an “apples to apples” comparison, meaning that you should compare the fees and performance of the same type of funds under different MPF schemes.
3. What to consider when switching MPF schemes?
You may decide to switch MPF schemes based on returns, charges and account management. But here are a few things you should know before making that decision:
- Switching takes time
Transfer of accrual benefits from one scheme to another involves buying and selling of funds and various procedures between the two MPF providers. The switching often leads to a one or two weeks’ “out of market” period, during which your accrual benefits will not be invested in any fund. Since the market volatility may cause changes in the fund price, your switching may end up selling low and buying high. Of course, it is also possible to sell high and buy low price.
- Fund restrictions
Funds can have restrictions. For example, a guaranteed fund may have a lock-up period. You will lose any guaranteed returns for the fund if you do not keep to the requirements. Before switching, check if there are any restrictions to your original scheme.
4. Should you combine your accounts?
Every time you change job, you open another MPF account. You can either transfer the benefits to the MPF account under your new employer’s scheme, or to the personal account under another scheme of your own choice, or keep the benefits in the original scheme selected by your former employer. Combining your accounts help you manage your MPF more easily, especially when you have several of them.
5. Do you want to make more contributions?
If you want to save more for retirement then you can make “voluntary contributions” to your employer’s MPF scheme.