Submission to the Mandatory Provident Fund Schemes Authority Consultation Paper on Proposals to Improve the Content of Annual Benefit Statement

1. The Consumer Council (CC) provides its comments below in response to a consultation paper released by the Mandatory Provident Fund Schemes Authority (MPFA) on proposals to improve the content of annual benefit statement (ABS) that is provided to members of mandatory provident fund (MPF) schemes.
    
2. CC is pleased to note that the MPFA has taken into consideration of CC's MPF study findings and recommendations for improving information disclosure in ABS when developing the proposals in the consultation paper.
    
3. This submission sets out CC's views as to the implications of the proposals and the list of specific questions (in italics) raised in the consultation paper, from the point of the interests of MPF scheme members.

Views on the Proposals

4. On a whole, the proposals put forward in the consultation paper are positive steps towards meeting the information needs of the MPF scheme members by provision of greater details about contributions, transactions, fees, charges and performance of the accounts of scheme members.
    
5. CC believes that the proposed content requirements of ABS will enable scheme members to effectively exercise their right to information for better understanding status of their MPF accounts and thereby better managing their retirement affairs.
    
6. In the following paragraphs, CC provides its views on each of the proposals for consideration of the MPFA.

Proposal 1: ABS to provide details on contributions and transfer of assets

7. CC considers the proposal of expanding the range of information in the ABS as set out in the "Contribution Statement" (Part 2 of the Sample ABS) will be useful to scheme members in understanding the movements in their MPF accounts, and should be included as part of the ABS. The provision of information on the amounts of each contribution collected (before and after fees), and transfer made (before and after fees) in a scheme member's account, helps scheme members to check out any missing or incorrect fund contributions and transfers. Whereas, the provision of information on fees deducted on each contribution and transfer, informs scheme members the effect of fees on their future retirement amount.
    
8. With regard to the suggestion of including the date of receipt of contribution by trustee as part of the ABS, CC supports to make this as a content requirement for enhancing the transparency of the contribution process. Posting the date that the contribution is received by the trustee facilitates scheme members to confirm if their employers are forwarding contributions to their accounts or have been paid on-time. From the interests of scheme members, the longer it took to receive contributions from their employers, the more interest the scheme members will stand to lose.
    
9. Whilst it is important for scheme members to have detailed contribution information, CC considers that for the ABS to include summary figures for the total amount of contributions invested, the total amount transferred into and out of scheme, and the total amount of fees deducted on contributions and transfers, serve a different purpose to scheme members and should be included in the ABS. Through this summary information, scheme members can easily get an overview of their accounts.

Proposal 2: ABS to provide details on fund transactions

10. CC welcomes the proposal that the ABS should contain details of each fund transaction as set out in the "Fund Transaction Statement" (Part 3 of the Sample ABS) which includes the nature of transaction (purchase or sale), the number of units transacted, and the purchase or sale price of units. The new information helps scheme members to better manage their MPF accounts and to track if their investment instructions have been implemented accurately.
     
11. For reason of allowing scheme members to fully understand the impact of transactional fees on their retirement benefits, CC supports to include fees deducted on each fund transaction.
     
12. To better safeguard the interests of scheme members, CC considers the proposal of including the fund transaction date in the "Fund Transaction Statement" of the ABS, is useful in improving the operation of funds-in transit (when funds are pending for investment). Giving details on the transaction date enable scheme members to better understand when their money is actually being invested or to know if their investment instructions have been implemented in a timely manner.

Approach to providing the new information under Proposals 1 and 2

13. On the proposal that trustees will be given an option to provide some of the new information set out in Proposals 1 and 2 by means other than the ABS (by electronic or web based), CC has concerns as to the effectiveness of this approach in ensuring all scheme members will have adequate access to the new information available to them. Under this approach, only the key information (i.e. the short version, Part 1 of the Sample ABS) will be provided in the ABS to scheme members.
     
14. CC's preference is to require all additional information proposed to be provided in the ABS (i.e. the long version, Parts 1 to 3) to be provided. For reason that average scheme members would not be knowledgeable enough to request for the right information if only the key information was provided in the ABS to scheme members, and it will mean many scheme members may not be able to make request on their trustees to provide additional information by themselves.
     
15. If such information is made available by electronic means or upon scheme members' request, where it is not likely to be accessed or asked and thereby ignored by scheme members. Therefore, to avoid diminishing the importance of the new information and to secure the most benefit to scheme members, CC is of the view that the new information should be included in the ABS to all scheme members.
     
16. With regard to the cost implication concern in relation to increasing the range of information, CC considers, including Parts 2 and 3 in the ABS should not be seen as excessive demand, as similar information is currently being provided in the market place. As pointed out in the consultation paper, in the case of a monthly retail fund investment plan, investors are usually able to have information on the investment details such as price paid and units bought. Information on each MPF contribution is also currently being provided to many scheme members in their benefit statements. CC cannot see why such information cannot be provided by the MPF trustees as this is in line with the industry's existing practices.
     
17. However, CC agrees that some scheme members may not wish to receive too detailed information. For purpose of this, CC suggests that after giving a long version of the ABS to all scheme members for the first time, scheme members would be given an option to indicate if they want to continue receive a paper based of the full version or the abridged version of the ABS. This option can be altered if scheme members make a request for change. Similar practice is adopted by Hong Kong's listed companies in the publication of their financial reports.
     
18. Notwithstanding that scheme members would have a choice to receive the long or short version of the ABS, CC is of the view that trustees should make available updated account / transactional information no less than quarterly via websites for access of their scheme members, as proposed in the consultation paper.
     
19. For ensuring scheme members know about this updated information, CC suggests that the trustees should include a statement, in prominent font size and position, in the ABS informing their scheme members in the ABS about the nature of information, the location where the information can be found, the approximate date that updated information would be available on website for access or ready for collection by fax.
     
20. Apart from signposting the above message in the ABS, CC further suggests MPFA to conduct educational programs to enhance scheme members' awareness of the new information and to encourage them to refer to the information for fuller understanding their MPF accounts.

Proposal 3: ABS to provide information about investment performance of individual member accounts

21. CC shares the view that lacking of account level performance information renders difficulties to scheme members to clearly appreciate about the investment returns of their accounts. CC, hence, supports that the performance figure indicating the gains and losses of the account in dollar terms should be included as a part of the key summary information in the ABS.
     
22. As MPF is a long-term investment, a single year return figure would not be adequate for scheme members to form a long-term view when making assessment about return expectations. CC understands that past performance does not indicate future results, but scheme members need to know if they have got a lemon. CC welcomes the proposal that requires the showing of account gain/loss figure for each of the previous four financial years in the ABS as this facilitates scheme members to compare past and current returns.
     
23. Nevertheless, in order to avoid encouraging scheme members to focus on past performance information, CC suggests an investment performance warning be included, where the past return figures were provided. This warning should serve to remind scheme members that the past return figures set out in the ABS are not a guide to figure performance. The figures are only intended to give a generalized indication of the progress of their investment accounts and scheme members should not make fund choice decisions solely based on short-term historical performance.

Proposal 4: ABS to use standardised terms and show the flow of calculation for key summary figures

24. Scheme members prefer to have standardization and consistency regarding the terminology used in ABS as varying terms are difficult for them to comprehend. The need for standardization in the terminology used across MPF schemes was called for in CC's previous submission.
     
25. CC supports the introduction of a standardized glossary to bring together all the key terms at one point, and to standardize the terms and their meaning, for scheme members' convenient and easy understanding.
     
26. On balancing the needs and costs, CC accepts that a glossary setting out the standardized terms be provided with the first ABS to scheme members after the implementation of the proposed changes made in the ABS, and thereafter be provided on scheme members' request and on websites. CC suggests that the proposed glossary should be provided to scheme members who are newly joining a MPF scheme.
     
27. With respect to the proposed key summary figures to be added in the ABS, CC considers that the order and position as stipulated in Part 1A of the Sample ABS are appropriate and useful to assist scheme members to have an overview of their account movements over the financial period. CC suggests that shading the whole Part 1A to give prominence in the ABS and providing the calculation formula of "Account Gain/(Loss)" (i.e. (d)=(e)-(a)-(b)+(c)) to show how it is calculated, should be made compulsory in the ABS.

Proposal 5: ABS to provide a caution statement about exit values at withdrawal

28. CC supports that a caution statement clarifying the difference between the value shown in the ABS and the actual exit value be included in the ABS. This may help to reduce any misunderstanding arising from the exit values as reflected in the ABS.
     
29. Further, CC considers consumer education in the correct interpretation of the exit values is also important. Trustees have a legal duty to communicate adequate and appropriate information to their scheme members.
     
30. To ensure the scheme members will notice the caution statement, CC suggests that specification of minimum size and the prominence of the warning statement should be stipulated in the ABS by the MPFA.
     
31. For ensuring that scheme members will be adequately informed of the vested amount in their MPF accounts, CC supports the proposal of presenting a breakdown of the total amount vested, including the vested amount of employer's voluntary contribution plus all mandatory contributions and employee's voluntary contributions, be shown in the ABS.
     
32. CC suggests including, in appropriate cases, the vesting percentage of employer's portion in the ABS so that scheme members would have clear understanding of their entitlement as at the statement date.

Views on the Specific Questions

Question 1. Are you generally supportive of the proposals to expand the content of ABS? If not, please explain why you think that the content should not be expanded as proposed.

33. CC considers that the proposals to expand the content of ABS would enhance market transparency for benefits not only to scheme members but to the MPF industry as a whole. For scheme members, they will have better and clearer information to help them to better manage their MPF accounts. For MPF service providers, they will gain market confidence in the long run, albeit that more customer enquiries may be expected at the beginning of implementation.

Question 2. Taking into consideration of the purposes of the ABS (paragraphs 3 and 4), and the general aim of the Proposals to improve the content of the ABS (paragraph 16), can you suggest other items that are not covered in the current Proposals, which should also be included in the ABS?

34. CC suggests to include the following items in the content of the ABS:
    1. Vesting percentage of employer's voluntary portion (in appropriate cases)
    2. Annual bonus / interest received (in appropriate cases)
    3. Contribution history - total contribution by year since inception
    4. Fund unit prices - change in unit prices over a specified number of year (if Part 3 of the Sample ABS not to be included)
    5. Fund expense ratio - the total level of expenses as a percentage of fund size (knowing fund charges a certain percentage of its earnings in fees or the total fees charged is not enough, scheme members need to know how those fees affect their final account balance).
        

35. CC understands that ABS is a backward looking document. However, in considering the objective of MPF for which is to help scheme members to prepare for their future retirement. CC suggests to include "retirement projections" as part of the ABS for scheme members' reference. This is to show an estimation of the lump sum that scheme members can expect to earn from their contributions up to retirement age. This figure helps scheme members to decide whether they will be able to afford the standard of living they want in retirement or whether they need to save more.
     
36. A caution statement is, however, needed to alert scheme members that the figures are only estimated projections based on specific assumptions and neither the assumptions nor the projections are guaranteed. 

Question 3. Would any of the Proposals in your view involve costs that will be disproportionate compared to the benefits of the additional disclosure?

37. MPF service provider is paid a fee to administer the business of the fund and that business includes providing scheme members with accurate information. CC is of the view that MPF service providers have a duty to provide sufficient account information to their scheme members. The MPF industry will have to explain why incremental charges are necessary in the provision of information to improve the quality of service to scheme members.

Question 4. Do you agree that the ABS should have detailed information on each contribution, fees charged on each contribution, the total amount of contributions invested (before and after fees), etc. as set out in Proposal 1? (See Part 2 of Annex 1 for a sample of the new information.)

38. CC's comments in paragraphs 7 - 8 of this paper refer.

Question 5. Do you agree that it is adequate to show contributions that are made more frequently than monthly (e.g. industry schemes) as a monthly sub-total of contributions at the discretion of the trustees so as not to overload the ABS?

39. CC has no specific comments on this aspect but believes that should be determined by the industries concerned with trustees to find out the best approach that suits their employees' needs.

Question 6. Do you agree that the ABS should have detailed information on each transaction, the fees charged on each transaction, the nature of the transaction, the net amount transacted for investment after fees, the units transacted, etc. as set out in Proposal 2? (See Part 3 of Annex 1 for a sample of the new information.)

40. CC's comments in paragraphs 10 - 12 refer.

Question 7. Are there any other types of fees and charges deducted in respect of contributions, transfers and transactions in constituent funds that should be but are not covered by Proposals 1 and 2?

41. CC is only of the view that since there are many types of fees and charges are being paid by scheme members' accounts, it is suggested to clearly spell out the fee terms (e.g. contribution charges, redemption charges) in the ABS, as far as possible, to avoid confusing scheme members.

Question 8. Do you agree that the ABS should show the dollar amount of fees paid by the scheme members' accounts?

42. Whilst it is important to show the dollar amount of fees paid by scheme members' accounts, CC suggests that the percentage level of fees paid should be included in the ABS, for scheme members' information.

Question 9. Do you think that the approach to providing the new information under Proposals 1 and 2 strikes a reasonable balance between the accessibility of updated information to scheme members, cost implications of providing such information and flexibility to provide such information to those who are interested? Do you think that other content not included in paragraph 41 should also be treated in the same manner?

43. CC's comments in paragraphs 13 - 20 refer.

Question 10. After consideration of the cost implications we have not proposed that the frequency of ABS should be increased beyond once per year. If implemented, the approach to providing the new information under Proposals 1 and 2 should ensure that most MPF members, who want more regular information, have access to transactional information that is updated at least quarterly. Do you agree that this approach is an adequate response to the need for more regular information or would you prefer to receive ABS more frequently than annually?

44. With regard to the proposed approach that the frequency of ABS should not be increased beyond once per year, CC would be concerned if adopting such approach would provide an excuse to trustees for not continuing to give more frequent (e.g. by quarterly) paper-based benefit statements to scheme members for some of which pledged to give when they promoted MPF schemes.
     
45. CC reiterates its stance that the member benefit statements are preferably to be provided at least twice a year, as voiced out by consumers in CC's previous study on MPF.

Question 11. Do you agree that the ABS should show the dollar amount of gains and losses of the scheme members' accounts?

46. CC's comments in paragraph 21 refer.

Question 12. Do you think it helpful to show similar figures of gains and losses for the previous four years?

47. Presenting similar figures of gains and losses for a much longer period of time will help scheme members to form a more reasonable view on the basis of historical performance of the funds for consideration of any future action. In particular that bad performance for a prolonged period may serve as an alert to scheme members to think hard if the funds so selected are suitable choice for them.
     
48. As noted in the paragraph 23, a caution statement should be included, immediately after where the past performance date is given, advising scheme members not to rely purely on past performance in making their investment decision.

Question 13. Would the information on performance help scheme members understand how their MPF investments are performing in recent years? Do you think that some more sophisticated measure is necessary? If so, what measure would you prefer?

49. In view that return figure in percentage terms is being widely used in the financial industry when reporting on investment performance, CC suggests that a consistent approach be adopted to present return in percentage terms in the ABS. This is to help scheme members to position the performance of their funds and any other funds in the investment markets in that period.
     
50. As to the choice of which method (time weighted or dollar weighted return) should be adopted to calculate investment return, CC relies on the expertise of the MPFA together with the financial industry to come up with a standardized approach on how the percentage of return should be calculated to best suit the interests of scheme members.

Question 14. Do you agree that it is necessary to use simple and standardised terms in the ABS so as to make it easier to understand? Do you think a glossary explaining the difficult terms would enable scheme members to better understand the content of ABS?

51. CC's comments in paragraphs 25 - 26 refer.

Question 15. Do you have any specific comments on the terms or explanations set out in the "Standardised Terms used in the ABS" at Annex 3? Are there any other terms that are frequently used in the ABS but are not covered in the list of Standardised Terms (Annex 3) that should usefully be included?

52. CC suggests adding the terms, "exit value", "fees at member account level" and "fund expense ratio", and their respective explanation in the list of standardized terms.

Question 16. Is the summary of key figures as presented in Part 1A of Annex 1 useful to scheme members in understanding the movements in their accounts during the financial year?

53. CC's comments in paragraph 27 refer.

Question 17. Do you think the summary should be provided in the same order and position in the ABS of all MPF schemes? Do you think setting the order and position in which the summary is provided help clarify the calculation of the key figures?

54. CC's comments in paragraph 27 refer. 

Question 18. Do you consider it necessary to provide a caution statement in the ABS if there are possible deductions or adjustments to account balances?

55. CC's comments in paragraphs 28 - 30 refer.

Question 19. Do you think that the caution statement adequately attracts attention and delivers the message clearly? If not, please suggest improvements to the position and/or wording of the statement.

"CAUTION: The actual amount that you would have got if you had withdrawn funds from scheme on this statement date, in the event of your retirement, total disability or death , may be less than the amounts shown in this statement. This is because there may be fees and charges associated with your withdrawal, or variation in fund prices upon realization of your funds , or other deductions or adjustments made according to the scheme rules. For information on estimates of exit value or clarification, please contact hotline at XXXX-XXXX." 

56. CC considers that putting the caution statement immediately after "vested balances" is appropriate and suggests to add the following wordings (underlined) into the proposed caution statement to better alert scheme members, which reads:

Other Comments

Important notice

57. In the section of "Important Notice" as noted in Part 1 of the Sample ABS, CC suggests adding a message that serves to invite scheme members to review their ABS carefully and contact trustees if found an error on their ABS, instead of limiting to scheme members' query about their ABS.

Presentation format

58. For easier reference of scheme members, CC encourages the industry to make use of more charts/graphs, where appropriate, to illustrate benefit values and costs, in the ABS.

ORSO

59. CC understands the proposed content requirements of the ABS will apply to all MPF schemes. But, in view that ORSO schemes also play an important part in the retirement business. CC urges MPFA to encourage ORSO service providers to apply the same content requirements of ABS in their schemes.

Conclusion

60. Overall, CC is of the view that the proposed ABS will give scheme members far more information than they have ever had on which to base decisions. CC urges all retirement schemes' service providers to take this golden opportunity to show that they are open and transparent to consumers.
     
61. CC also believes the implementation of the proposed ABS together with comprehensive education programs to inform about the full range of information available in the ABS will greatly enhance scheme members' understanding of their MPF investment. CC is willing to assist, through its educational and publicity resources, in consumer education about the new ABS.