Default Investment Strategy
A. What is DIS?
DIS is a ready-made investment arrangement mainly designed for those members who are not interested or do not wish to make a fund choice, and is also available as an investment choice itself, for members who find it suitable for their own circumstances. For those members who do not make an investment choice, their future Investments will be invested in accordance with the DIS. The DIS is required by law to be offered in every MPF scheme and is designed to be substantially similar in all MPF schemes.
(a) Objective and Strategy
The DIS aims to balance the long term effects of risk and return through investing in two constituent funds, namely the Core Accumulation Fund ("CAF") and the Age 65 Plus Fund ("A65F"), according to the pre-set allocation percentages at different ages. The CAF will invest around 60% in higher risk assets (higher risk assets generally mean equities or similar investments) and 40% in lower risk assets (lower risk assets generally mean bonds or similar investments) of its net asset value whereas the A65F will invest around 20% in higher risk assets and 80% in lower risk assets. The DIS Funds adopt globally diversified investment principles and use different classes of assets, including global equities, fixed income, money market and cash, and other types of assets allowed under the MPF legislation.
Diagram 1: 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 in time may deviate from the target glide path due to market fluctuations.
(b) Annual de-risking
Accrued benefits invested through the DIS will be invested in a way that adjusts risk depending on a member’s age. The DIS will manage investment risk exposure by automatically reducing the exposure to higher risk assets and correspondingly increasing the exposure to lower risk assets as the member gets older. Such de-risking is to be achieved by way of reducing the holding in the CAF and increasing the holding in the A65F over time. The asset allocation stays the same up until 50 years of age, then reduces steadily until age 64, after which it stays steady again.
In summary, under the DIS:
When a member is below the age of 50, all accrued benefits and future investments will be invested in the CAF.
When a member is between the ages of 50 and 64, all accrued benefits and future investments will be invested according to the allocation percentages between the CAF and A65F as shown in the DIS de-risking table (as per Diagram 2 below). The de-risking on the existing accrued benefits and future investments will be automatically carried out as described above.
When a member reaches the age of 64, all accrued benefits and future investments will be invested in the A65F.
If the relevant member has reached 60 years of age before 1 April 2017, unless the member has given a specific investment instruction (as defined in section E below), the member's accrued benefits (including Future Investments) will be invested in the same manner as at 31 March 2017.
For a deceased member, de-risking will cease once the Trustee has received proof of the death of the member to the Trustee's satisfaction. If de-risking has already been taken place between the death of the member and the time at which the Trustee received the satisfactory proof of such death, such de-risking will not be undone, although no further de-risking will take place in respect of the deceased member.
If the Trustee does not have the full date of birth of the relevant member:
If only the year and month of birth is available, the annual de-risking will use the last calendar day of the birth month, or if it is not a dealing day, the next available dealing day.
If only the year of birth is available, the annual de-risking will use the last calendar day of the year, or if it is not a dealing day, the next available dealing day.
If no information at all on the date of birth, member's accrued benefits will be fully invested in A65F with no de-risking applied.
Diagram 2: DIS De-risking Table
|Age||Core Accumulation Fund ("CAF")||Age 65 Plus Fund ("A65F")|
|64 and above||0.0%||100.0%|
Note: The above allocation between the CAF and A65F is made at the point of annual de-risking and the proportion of the CAF and A65F in the DIS portfolio may vary during the year due to market fluctuations.
(c) Fees and out-of-pocket expenses of the CAF and A65F
The aggregate of the payments for services of the CAF and A65F must not, in a single day, exceed a daily rate of 0.75% per annum of the net asset value ("NAV") of each of the DIS Funds divided by the number of days in the year. It includes, but is not limited to, the fees paid or payable for the services provided by the trustee, the administrator, the investment manager(s), the custodian and the sponsor and/or the promoter of the Scheme and the underlying investment fund(s) of the respective DIS Funds, and any of the delegates from these parties and such fees are calculated as a percentage of the NAV of each of the DIS Funds and its underlying investment fund(s), but does not include any out-of-pocket expenses incurred by each DIS Fund and its underlying investment fund(s).
The total amount of all payments that are charged to or imposed on the DIS Funds or members who invest in DIS Funds, for 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 NAV of each of the DIS Funds. For this purpose, out-of-pocket expenses include, for example, annual audit expenses, printing or postage expenses relating to recurrent activities (such as issuing annual benefit statements), recurrent legal and professional expenses, safe custody charges which are customarily not calculated as a percentage of NAV and transaction costs incurred by a DIS Fund in connection with recurrent acquisition of investments for the DIS Fund (including, for example, costs incurred in acquiring underlying investment funds) and annual statutory expenses (such as compensation fund levy where relevant) of the DIS Fund.
(d) Key Risks Relating to the DIS
Members should note that the DIS is subject to various risks and limitations, including:
Limitations on the strategy
Age as the sole factor in determining the asset allocation under the DIS
The DIS does not take into account factors other than age, such as market and economic conditions nor member's personal circumstances.
Pre-set asset allocation
The CAF and A65F have to follow the prescribed allocation between higher risk assets and lower risk assets at all times. Such prescribed allocation will limit the ability of the investment manager of the underlying funds of each of the CAF and A65F to adjust asset allocations in response to sudden market fluctuations.
Annual de-risking between the CAF and A65F
Members should note that de-risking for each relevant member will generally be carried out on a member's birthday, regardless of the prevailing market conditions. Members should be aware that the de-risking operates automatically regardless of the wish of a member to adopt a strategy which might catch market upside or avoid market downside.
Potential rebalancing within each of the CAF and A65F
In order to maintain the prescribed allocation between the higher risk assets and lower risk assets within each of the CAF and A65F, the investments of each of the CAF and A65F may have to be continuously rebalanced.
Additional transaction costs
Due to (a) the potential rebalancing of assets and (b) the annual reallocation of accrued benefits for members under the de-risking process, the DIS may incur greater transaction costs than a fund / strategy with more static allocation.
General investment risk related to DIS
Although DIS is a statutory arrangement, it does not guarantee capital repayment nor positive investment returns. Members should note that the DIS which invests in the DIS Funds is subject to the general investment risks that apply to mixed asset funds.
Risk on early withdrawal and switching
Since the DIS has been developed having regard to the long-term balance between risks and likely returns, and assumes retirement at the age of 65, any cessation of the strategy (for example through early withdrawal of accrued benefits or switching into other funds) will affect that balance.
Impact on members keeping benefits in the DIS beyond the age of 64
The A65F holds around 20% of its assets in higher risk assets which may not be suitable for all members beyond the age of 64.
(e) Information on Performance of DIS Funds
The fund performance of the DIS Funds will be published in the fund factsheet attached to annual benefit statement and other relevant marketing materials, members can visit https://www.principal.com.hk or call the customer service hotline on 2827 1233 (for Principal MPF Scheme Series 800) or 2802 2812/2885 8011 (for Principal MPF - Smart Plan and Principal MPF - Simple Plan) for information. Members may also obtain the fund performance information at the website of the Mandatory Provident Fund Schemes Authority (www.mpfa.org.hk).
B. Implications for New and Pre-existing Accounts on or after DIS Implementation
(a) Implications on accounts opened on or after 1st April 2017
When members join the Scheme or set up a new account in the Scheme on or after 1st April 2017, they are encouraged to give an investment instruction (as described in section E below) for their future investments. If members fail to or do not want to submit to the Trustee an investment instruction at the time of their requests to join / set up a new account in the Scheme, the Trustee shall invest any of their future investments into the DIS.
(b) Implications on accounts opened before 1st April 2017
There are special rules to be applied for pre-existing accounts and these rules only apply to members who are under or becoming 60 years of age on 1st April 2017
For a member's pre-existing account with all accrued benefits being invested into the existing default fund but no investment instruction being given (known as "DIA account"):
There are special rules and arrangements to be applied to determine whether accrued benefits in a DIA account will be transferred to the DIS. If your pre-existing account is considered as a DIA account, you will receive a notice called the DIS Re-investment Notice explaining the impacts on your pre-existing account and giving you an opportunity to give a specified investment instruction to the Trustee before the accrued benefits are invested into the DIS.
For details of the arrangement, members should refer to the DIS Re-investment Notice.
For a member's pre-existing account which, as at 31 March 2017:
1. has part of the accrued benefits in it invested in the Existing Default Fund (as a result of no valid investment instruction being given in respect of that part of the accrued benefits), or
2. has all of the accrued benefits in it invested in constituent funds other than the original Existing Default Fund after scheme restructuring whereby all or any of the accrued benefits in the pre-existing account were transferred to the pre-existing account from an account in another MPF scheme in a restructuring to which the MPFA consented under section 34B(5) of the Mandatory Provident Fund Schemes Ordinance, or
3. has all of the accrued benefits in it invested in the Existing Default Fund after fund termination,
unless the Trustee has received any specific investment instructions (as defined in Section E below), the member's accrued benefits as well as Future Investments paid to the member's pre-existing account on or after 1 April 2017 will be invested in the same manner as at 31 March 2017. Where the member's pre-existing account has zero balance as at 31 March 2017, if the pre-existing account would fall under either (i), (ii) or (iii) had there been accrued benefits in the pre-existing account as at 31 March 2017, unless the Trustee has received specific investment instructions, Future Investments in the member's pre-existing account on and after 1 April 2017 will be invested in the manner as described under (i), (ii) or (iii) (as the case may be).
For a member's pre-existing account which, as at 31 March 2017, has all of the accrued benefits in it invested in constituent funds other than the original default investment arrangement for whatever reasons (e.g. as a result of switching instructions or accrued benefits from another account within the Scheme being transferred to the pre-existing account) and no investment mandate has ever been given for the pre-existing account in respect of Future Investments, unless the Trustee has received any specific investment instructions, the member's accrued benefits will be invested in the same manner as they were invested immediately before 1 April 2017, while the Future Investments paid to the member's pre-existing account on or after 1 April 2017 will be invested in the DIS.
C. Rules and Procedures Applicable to Investment through the DIS
(a) Fund Choice Combination
Members who join the Scheme on or after the 1st April 2017 may choose to invest their future investments into1:
the DIS; or
one or more CFs of their own choice from the list under relevant parts of in the MPF Scheme Brochure (including the CAF and the A65F as standalone investments) and according to their assigned allocation percentage(s) to relevant fund(s) of their choice.
Members should note that, if they choose the CAF and/or A65F as standalone investments, those investments/benefits will not be subject to the de-risking process. If a member's accrued benefits are invested in any combination of (i) CAF and/or A65F as standalone investments and (ii) the DIS (no matter by default or by member's investment instruction), accrued benefits invested under (i) will not be subject to the de-risking process whereas for accrued benefits under (ii) will be subject to the de-risking process. In this connection, members should pay attention to the different on-going administration arrangements applicable to accrued benefits invested in (i) and (ii). In particular, members will, when giving a fund switching instruction, be required to specify to which part of the benefits (namely, under (i) or (ii)) the instruction relates.
(b) Switching / transfer in and out of the DIS
Members can switch into or out of the DIS at any time, subject to the rules of the Scheme. In particular, members may elect to not invest their Future Investments in the DIS while having the existing accrued benefits invested in the DIS, or vice versa. Partial switching in/out of the DIS is allowed. Members should, however, bear in mind that the DIS has been designed as a long-term investment arrangement. For the avoidance of doubt, DIS will cease to apply to any benefits withdrawn or transferred out of the Scheme, whether or not the withdrawal is a partial withdrawal and regardless of the circumstances (e.g. refund/payment of statutory long service pay/severance pay). Benefits invested in the DIS and remaining in the Scheme will continue to be subject to the DIS.
For the avoidance of doubt, where a member gives a switching instruction with regard to his / her existing investment, such instruction only applies to existing investments and not Future Investments.
D. Rules and Procedures of Annual De-Risking
The de-risking is to be achieved by annual adjustments of asset allocation gradually from CAF to A65F under the DIS. Save for the circumstances set out in this section, switching of the existing accrued benefits among CAF and A65F will be automatically carried out each year on a member's birthday and according to the allocation percentages as shown in the DIS De-risking Table as shown in Diagram 2 above. If:
(a) the member's birthday is not on a dealing day, then the investments will be moved on the next available dealing day, or
(b) the member's birthday falls on 29 February and in the year which is not a leap year, then the investments will be moved on 1 March or the next available dealing day.
If there is any exceptional circumstance, e.g. market closure or suspension of dealing, on the member's birthday which makes it impossible for the investments to be moved on that day, the investments will be moved on the next available dealing day when there is no such exceptional circumstance.
If the relevant member notifies the Trustee of his/her updated birthday, then the Trustee will as soon as practicable adjust the allocation between the CAF and the A65F according to his/her updated birthday, and effect the de-risking in the future years according to the DIS de-risking table in Diagram 2 above and his/her updated birthday.
If the Trustee receives one or more of the specified instructions, including but not limited to subscription (e.g. contribution or fund transfer-in), redemption (e.g. fund transfer-out or withdrawals) or switching instructions on or before the date on which the annual de-risking is to take place and such specified instruction(s) are being processed on the date on which the annual de-risking is to take place, while the annual de-risking will only take place after completion of these instructions, the annual de-risking will be completed on the original de-risking date. In particular, members should refer to the cut-off time and the required time to complete (after the date of receipt of completed instruction) as set out in the "Trustee Service Comparative Platform" in the MPFA's website (collectively, the "required timeframe") before submitting a valid switching instruction or change of investment mandate instruction in order to ensure that the instruction can be processed on or prior to the de-risking date. Any valid switching instruction or change of investment mandate instruction received by the Trustee before the annual de-risking but not meeting the required timeframe may only be completed after the annual de-risking.
The smallest amount of units of the A65F and / or the CAF that can be issued in the annual de-risking under the DIS shall be rounded down to 3 decimal places.
Members should be aware that the above de-risking will not apply where the member chooses CAF and A65F as standalone investments (rather than as part of the DIS).
E. Rules and Procedures relating to Investment Instructions
An instruction to invest accrued benefits and Future Investments, change investment mandate for Future Investments or switch investments for existing accrued benefits must be in a form of a specific investment instruction.
A specific investment instruction means:
(a) subject to (b) below, an instruction for investment allocations which meets the following requirements:
the minimum investment allocation in any constituent fund selected must be an integer (e.g. 6% and not 6.5%); and
the total must be 100%; or
(b) (in respect of any switching instruction) an instruction for switching in respect of the same class of units, and the percentage amount for switching is an integer percentage and the switch-in total must be 100%;
(c) any confirmation by a member (whether made verbally or through hard copy submission, online submission, email, IVRS (interactive voice recording system) or mobile apps) with regard to any investment arrangements of the existing accrued benefits and / or Future Investments.
The specific investment instruction for mandatory contributions (regardless of whether they are from employers or members) may be different from the specific investment instruction for voluntary contributions (regardless of whether they are from employers or members) or existing special voluntary contributions. Where no specific investment instruction is given in respect of a particular type of contribution, contribution falling under that type will be invested in the DIS.
F. Download of Important Notices
(a) Important Notice
(b) MPF Scheme Brochure
2802 2812/2885 8011 (for Principal MPF - Smart Plan and Principal MPF - Simple Plan)