Default Investment Strategy (DIS)

The Mandatory Provident Fund Schemes (Amendment) Bill 2015 has been passed by the Legislative Council which provides for the introduction of a Default Investment Strategy (DIS) and requires each Mandatory Provident Fund (MPF) scheme to provide the DIS. The DIS is launched on 1 April, 2017.

DIS is a highly standardized and fee-controlled MPF investment strategy designed to be consistent with the objective of building up long-term retirement savings. If scheme members do not make any choices for their MPF investments, their accrued benefits and future investments (meaning future contributions and accrued benefits transferred from another MPF scheme) will be invested according to the DIS of their respective scheme. Scheme members can also choose to opt for the DIS.

Key features of the DIS:

Made up of two portfolios

The DIS is made up of two mixed asset portfolios, namely the Core Accumulation Portfolio and the Age 65 Plus Portfolio ("DIS Funds"). The DIS Funds will invest in a globally diversified manner. The Core Accumulation Portfolio will invest more in higher risk investments (e.g. global equities), while the Age 65 Plus Portfolio will invest more in lower risk assets (e.g. global bonds). The investment ratios of these two DIS Funds are shown in the diagram below:


Members should note that the two DIS Funds have to follow the prescribed allocation between higher risk assets and lower risk assets at all times subject to a tolerance level of + or - 5%.

Investment principles

Age-based de-risking
As the scheme member approaches retirement age, the investment strategies will be adjusted automatically by reducing the investment in higher risk assets accordingly:

Aged below 50:

all accrued benefits and future investments will be invested in the Core Accumulation Portfolio.

Aged between 50 and 64:

all accrued benefits and future investments in the Core Accumulation Portfolio will be gradually switched to the Age 65 Plus Portfolio each year, so that the ratio of higher risk assets in DIS will fall each year.

Aged 64 and above:

all accrued benefits and future investments will be invested in the Age 65 Plus Portfolio.


Asset Allocation between the DIS Funds according to the DIS



Note: The exact proportion of the portfolio in higher/lower risk assets at any point of time may deviate from the target glide path due to market fluctuations


DIS De-risking Table

Age FWD MPF Basic/Comprehensive Scheme Core Accumulation Portfolio (“CAP”) FWD MPF Basic/Comprehensive Scheme Age 65 Plus Portfolio (“A65P”)
Below 50 100.0% 0.0%
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 0.0% 100.0%

Note: The above allocation between the CAP and A65P is made at the point of annual de-risking and the proportion of the CAP and A65P in the DIS portfolio may vary during the year due to market fluctuations.


The above de-risking is to be carried out each year on the relevant member’s birthday. If a member’s birthday falls on a day which is not a dealing day (e.g. 11 June, 2017, Sunday), the de-risking process will be conducted in the next available dealing day.


Globally diversified
Investment markets are often affected by factors such as the geopolitical and economic situations in different countries. To diversify risk, the portfolios will invest in both local and overseas markets in a diversified manner.

Fee controls

The aggregate of the payments for services of DIS Funds ("service fees") must not, in a single day, exceed a daily rate of 0.75% per annum of the net asset value of each of the DIS Funds divided by the number of days in the year. The out-of-pocket expenses incurred by the trustee on a recurrent basis in the discharge of the trustee’s duties to provide services in relation to the DIS Funds, shall not in a single year exceed 0.2% of the net asset value of each of the DIS Funds.

The service fees covered within the fee cap include all fees for services provided by trustees, administrators, investment managers, custodians, sponsors and promoters (if any), as well as similar fees chargeable to the underlying investment funds.

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Impact to new and existing scheme members since 1 April, 2017, the effective date of DIS

New scheme members
When new Scheme members enroll in an MPF scheme, they will have three options in respect of their MPF investment:
If scheme members do not make any investment choice, their accrued benefits and future investments will be invested according to the DIS automatically. Members can proactively choose to invest according to the DIS, in which case their accrued benefits and future investments will be automatically invested in the Core Accumulation Portfolio and/or the Age 65 Plus Portfolio depending on their age at the time.

Scheme members can invest by choosing different fund types and the investment ratios themselves. Besides existing choices, members will also be able to invest in the new Core Accumulation Portfolio and/or the Age 65 Plus Portfolio individually. However, because in this case members invest in these two funds not because they have chosen the DIS, their portfolios will not automatically de-risk as they get older. Members should therefore review their portfolio regularly, and make adjustments where necessary.

Existing scheme members
In general, scheme members who, when they first joined an MPF scheme, did not make any investment choice. Their accrued benefits and future investments were 100% invested in portfolio in accordance with the default investment arrangement (i.e. FWD MPF Basic/Comprehensive Scheme Capital Guaranteed Portfolio). The trustees will notify relevant scheme members (i.e. the “DIS Re-Investment Notice”) within 6 months after 1 April, 2017. Scheme members will then have the opportunity to make fund choices, within 42 days (the “Expiry Date”) of notification. If members do not reply before the Expiry Date, their accrued benefits and future investments will be invested according to the DIS within 14 days.

There are special circumstances where the accrued benefits in the pre-existing account are transferred from another account within the Scheme (e.g. in the case of cessation of employment, where accrued benefits in your contribution account are transferred to a personal account within the Scheme), your accrued benefits in the pre-existing account will be invested in the same manner as they were invested immediately before the transfer but your future investments may be invested in the DIS after the implementation of the DIS, unless otherwise instructed.

As the existing default fund, FWD MPF Basic/Comprehensive Scheme Capital Guaranteed Portfolio, is a guaranteed fund, on the Expiry Day, the market value of a member’s accrued benefits in the existing default fund will be compared against the guaranteed value of such accrued benefits. In the event that the market value is less than the guaranteed value, the member’s accrued benefits (including any future investments) will continue to be invested in the existing default fund.

In the case of members who are aged 60 or above before 1 April 2017 and who hold a Pre-existing Account, the accrued benefits, future contributions and accrued benefits transferred from another scheme in the Pre-existing Account will continue to be invested in the same manner as accrued benefits, future contributions and accrued benefits transferred from another scheme (as the case may be) were invested immediately before 1 April 2017, unless the Trustee receives any investment instructions or switching instructions.

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Illustrative examples on the comparison in value in the FWD MPF Basic/Comprehensive Scheme Capital Guaranteed Portfolio:

Example 1: A personal account member did not give any investment instruction and transferred $100,000 to the FWD MPF Master Trust Basic/Comprehensive Scheme on 15 October 2012. 100% of the accrued benefits was invested into the FWD MPF Basic/Comprehensive Scheme Capital Guaranteed Portfolio (i.e. the “existing default fund”) on 15 October 2012. On 1 April 2017, such account is identified as a DIA account and a DIS Re-Investment Notice was issued on 1 September 2017 to the member. The Trustee did not receive any reply or investment instruction from the member on 14 October 2017 (i.e. 42 days from the date of the DIS Re-Investment Notice). The market value of existing default fund on 14 October 2017 is $90,000.

The member has continuously invested in the existing default fund for a 5-year period from 15 October 2012 until 14 October 2017, and accordingly the guarantee would apply on 14 October 2017, and the shortfall between the guarantee value and the market value of $10,000 will be credited to the member’s account. Since the guarantee amount of $100,000 is higher than the market value of existing default fund at $90,000 on 14 October 2017, according to the MPF Ordinance, all accrued benefits in the account will remain in the existing default fund and will not be transferred to the DIS. Any future contributions and accrued benefits transferred from another scheme to the member’s account will continue to be invested in the existing default fund.

Example 2: A personal account member did not give any investment instruction and transferred $100,000 to the FWD MPF Master Trust Basic/Comprehensive Scheme on 15 October 2012. 100% of the accrued benefits were invested into the FWD MPF Basic/Comprehensive Scheme Capital Guaranteed Portfolio (i.e. the “existing default fund”) on 15 October 2012. On 1 April 2017, such account is identified as a DIA account and DIS Re-Investment Notice was issued on 1 September 2017. The Trustee did not receive any reply or investment instruction from the member on 14 October 2017 (i.e. 42 days from the date of the DIS Re-Investment Notice). The market value of existing default fund on 14 October 2017 is $110,000.

The member has continuously invested in the existing default fund for a 5-year period from 15 October 2012 until 14 October 2017, and accordingly the guarantee would apply on 14 October 2017, although in this case no shortfall is payable under the guarantee. Since the guarantee amount $100,000 is lower than the market value of existing default fund $110,000 on 14 October 2017, according to the MPF Ordinance, the member’s accrued benefits in the existing default fund will be invested according to the DIS by 28 October 2017 (i.e. 14 days after 14 October 2017). Furthermore, any future contributions or accrued benefits transferred from another scheme into the account after 14 October 2017 will also be invested according to the DIS.

Example 3: A personal account member did not give any investment instruction and transferred $100,000 to the FWD MPF Master Trust Basic/Comprehensive Scheme on 15 October 2015. 100% of the accrued benefits was invested into the FWD MPF Basic/Comprehensive Scheme Capital Guaranteed Portfolio (i.e. the “existing default fund”) on 15 October 2015. On 1 April 2017, such account is identified as a DIA account and a DIS Re-Investment Notice was issued on 1 September 2017 to the member. The Trustee did not receive any reply or investment instruction from the member on 14 October 2017 (i.e. 42 days from the date of the DIS Re-Investment Notice). The market value of existing default fund on 14 October 2017 is $90,000.

The member has invested in the existing default fund for less than 5 years from 15 October 2015 until 14 October 2017, and accordingly the guarantee would not apply. Since no guarantee amount is applicable, the member’s account will be credited with the market value of $90,000. According to the MPF Ordinance, the member’s accrued benefits in the existing default fund will be invested according to the DIS by 28 October 2017 (i.e. 14 days after 14 October 2017). Furthermore, any future contributions or accrued benefits transferred from another scheme into the account after 14 October 2017 will also be invested according to the DIS.

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Handling of de-risking when clashing with other member’s instructions

Below are illustrative examples of operational arrangements on DIS de-risking when the de-risking day (member’s birthday) clashes with other member’s instructions with the assumptions that:

  1. The member account has investment in DIS (either by default or he actively chose to invest into the DIS)
  2. The future investment mandate of the member account is DIS (either by default or he actively chose to invest into the DIS)
  3. The member is at age 54 and will turn age 55 on 14 Jun 2017

1. Contributions and transfer-in monies

Business rule: If contributions or transfer-in benefits are allocated to the member’s account and under the fund subscription process on the member’s birthday, no de-risking of the member’s benefits will be performed on the member’s birthday. De-risking of member’s fund balance will be performed on the next dealing date after units has been subscribed and allocated to the member’s account.

Example:

Member’s next birthday

14 Jun 2017 (Age 55)

Contributions allocated to member’s account

13 Jun 2017

Placing of subscription orders

14 Jun 2017

Ready of fund price

16 Jun 2017

Units allocated to member’s account

16 Jun 2017

De-risking (asset allocation changed from age 54 to 55 in accordance to the DIS de-risking table)

19 Jun 2017

2. Transfer out/ Withdrawal/ Claim

Business rule: If a valid transfer/ withdrawal/ claim request that involves redemption of benefits is received and under the fund redemption process on the member’s birthday, no de-risking of the member’s benefits will be performed on the member’s birthday. De-risking of member’s fund balance will be performed on the next dealing date after the redemption process, if any.

Example:

Member’s next birthday

14 Jun 2017 (Age 55)

Transfer out/ withdrawal/ claim request made

12 Jun 2017

Placing of redemption orders

14 Jun 2017

Ready of fund price

16 Jun 2017

Units redeemed

16 Jun 2017

De-risking (asset allocation changed from age 54 to 55 in accordance to the DIS de-risking table)

19 Jun 2017

3. Switching

Business rule: If a member would like to switch into or out from DIS before the annual de-risking, the switching request must be submitted before 5.00pm at 2 business days before the member’s birthday, i.e. switching process will be conducted first. For a switching request received after 5.00pm at 2 business days before the member’s birthday, the switching will only be performed, if the switching request is still valid after completion of the de-risking process, i.e. de-risking process will be conducted first.

Example 1:

Member’s next birthday

14 Jun 2017 (Age 55)

Fund switching request made

12 Jun 2017 4.00pm

Completion of fund switching

13 Jun 2017

De-risking (from age 54 to 55)

14 Jun 2017


Example 2:
Member’s next birthday

14 Jun 2017 (Age 55)

Fund switching request made

12 Jun 2017 6.00pm

Completion of fund switching

15 Jun 2017

De-risking (from age 54 to 55)

14 Jun 2017

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Notice and Addendum
Notice will be sent to members by the end of January 2017. Please click here for details about the notice and addendum.

DIS Re-investment Notice (DRN) Mailing Schedule
12 - 19 April, 2017

Designated channels for submission of the reply form attached with the DRN (Option 2 Form):

Channel To Cut-off time for receiving Option 2 Form
By post FWD MPF Master Trust Basic/Comprehensive Scheme
The Administrator, BestServe Financial Limited,
10/F, One Harbourfront, 18 Tak Fung Street,
Hunghom, Kowloon, Hong Kong
Received by the administrator by 5:45pm by the end of the reply period on the DRN
In person FWD MPF Master Trust Basic/Comprehensive Scheme
The Administrator, BestServe Financial Limited,
10/F, One Harbourfront, 18 Tak Fung Street,
Hunghom, Kowloon, Hong Kong
(Monday to Friday 9:00am - 5:45pm)
By fax 3183 1901 Received by the administrator by 11:59pm by the end of the reply period on the DRN

Important Notes:

  • Members should not submit the Option 2 Form(s) other than the above listed designated channels (e.g. via FWD MPF agents or send to FWD Pension Trust Limited).
  • Members should pay special attention to the cut-off time of each designated channel and allow sufficient postage time and postage fee, where relevant, in sending back the Option 2 Form(s) before the specified date set out in the DRN.
  • If members submit the Option 2 Form(s) via channels other than the above listed designated channels, and received by the administrator within the reply period, the Option 2 Form(s) would still be processed. However, please be aware that transfer time is required to pass the Option 2 Form(s) received from non-designated channels to the administrator, which may lead to late submission to the administrator beyond the reply period.