With the introduction of new rules effective from November 2012, employees are able to exercise an annual option to transfer accrued benefits stemming from their original contributions in the service provider chosen by their employers to one of their own choice.
The option, also known as employee choice arrangement (ECA), allows participants access to a new level of flexibility in the mandatory retirement scheme.
Now that you are given a new found power to modify your MPF preferences, approach this flexibility cautiously. Start by evaluating whether a change of scheme is necessary.
3 questions to ask yourself:
- Why are the factors influencing a desire to change the scheme?
- What are the strengths of the current scheme?
- What improvements do I hope to acquire from a new one?
Understanding your current scheme will provide a good basis for comparisons. Chances are you will find service providers aggressively marketing. Find something that is right for you, and not just because it is on the table.
Funds Availability & Performance
Legal requirements require every MPF scheme to possess at least one conservative fund. Ideally, they should also cover a variety of different funds to accommodate different risk appetites.
Be mindful of the possibility that your investment preferences may change over time. It is recommended that options are readily available if and when you need to do a rebalancing of your portfolio should circumstances change.
It is also beneficial to have a good grasp on past performances of funds offered by service providers. Although investment principles suggest that past performances are not indicative of future performances, they can often provide an understanding of background information as well as a potential degree of volatility.
There are certain MPF schemes that charges membership and/or annual fees anywhere between hundreds to thousands of dollars. Make sure you are aware and agreeable to these payments, as they ride on top of typical charges such as management and withdrawal fees.
Selective funds, more often equity funds, have a tendency to impose performance fees when the returns exceed certain expectation. They can be a wet blanket over potentially higher gains, as they are charged in additional to normal fund operational management expenses.
You can utilize the expenses ratio as comparisons to what other service providers may be offering
Start by enquiring the modes of account monitoring features that are in place. The more comprehensive they are, the better it is for you. Depending on personal preferences, some may value personalized response systems such as phone enquiries over an account overview through the Internet.
The ability to keep track of fund performances is fairly important. Ensure that the potential service provider you may choose provides the latest updates as regularly as you would like to access them.
Application procedures for the purpose of fund switching have to be considered based on the time and price factor associated to effect new changes.
A New Beginning
The performance of your MPF is largely dependent on your ability to weigh critical investment decisions. Choosing a suitable MPF service provider is the first stepping stone towards your financial objectives in retirement.
They are the packaged deal of influential factors which will play a primary role in your control over the scheme, and will have an unquestionable impact in the efficiency in which you can manage it.
Keep in mind that the new rules only enables a single transfer annually. If you have to make a change, take necessary steps to ensure it is a step in the right direction.