Upcoming HK eMPF Platform Gives PensionTech a Much-Needed Makeover

Image credit: iStockphoto/Diamond Dogs

Hong Kong’s Mandatory Provident Fund (MPF) system is about to undergo a facelift. After introducing the city’s MPF system more than 20 years ago, the Mandatory Provident Fund Scheme Authority (MPFA) will be introducing the eMPF Platform in 2023. The new initiative aims to digitalize administrative tasks and reshape the retirement and pension industry.

Considered the city’s largest digital transformation project, the eMPF Platform will replace the decentralized and paper-based administrative processes with a centralized digital platform. It is expected to transform the operations of MPFA, 13 trustees, 10 million MPF accounts, and every Hong Kong business employer.

“This is not only a project that involves multiple stakeholders in the MPF ecosystem, but also one that takes Hong Kong one step closer to becoming a smart city,” said Darron Sun, vice chairman of the eMPF Committee at Institute of Financial Technologists of Asia (IFTA), one of the organizations that MPFA has reached out for the recent consultation sessions of the eMPF Platform mockup.

Saving billions of dollars in administrative cost

Sun, a former IT executive at one of the 13 trustees, added that the eMPF Platform digitalizing the existing manual administrative tasks is expected to bring significant savings in administration fees.

According to MPFA, currently, there are 100,000 paper-based transactions daily to handle the administrative tasks of the MPF system. The administration fee costs around 0.58% of the asset under management. With the introduction of the eMPF Platform next year, the administration fee is expected to drop by 30%, and in 10 years, the cumulative savings could reach HKD40 billion.

MPFA explained the eMPF Platform would integrate the existing 12 different scheme administrative platforms and act as a one-stop platform to digitalize the process for employers to manage the enrollment and contribution of MPF accounts digitally. Employees only need to register with the eMPF Platform once for their life-long management and visibility of their MPF portfolios, even if they change jobs, schemes providers, or investment funds.

Sun added through centralizing the administrative platform, the eMPF Platform is also collecting incredible insights for transforming the pension industry and fostering the development of PensionTech.

A long-awaited transformation

For some, the introduction of the eMPF Platform is a long-awaited transformation.

“The development of PensionTech in Hong Kong is relatively slow,” said Jacob Wai, partner-consulting at Deloitte and an assessor of the Hong Kong ICT Awards 2021 Fintech Award categories. “Most MPF trustees found the profit margin of MPF and pension businesses are relatively low, compared to other insurance and banking services, so they didn’t have much incentive to grow or digitalize it.”

MPFA’s data also indicated that 70% of the employers in Hong Kong were manual users and relied on paper and cheques for all the administrative processes of MPF.

Wai, also previously an owner of a small tech consulting firm, added many Hong Kong employers are SMEs. With limited resources and tight cash flow, they often relied on the insurance agents to manually handle the MPF administrative tasks. Larger enterprises also needed to digitalize their HR systems before becoming digital users to engage with the administrative platforms directly.

Nevertheless, he said the eMPF Platform would bring great opportunities for all the stakeholders within the MPF ecosystem to transform their business.

Transformation for all stakeholders

“The eMPF Platform is much more than a technological change, and it has far-reaching implications,” noted PwC in its publication The eMPF Platform is coming: Are you ready? “All market players in the value chain will be required to revisit how they remain relevant in the post-eMPF world.”

On top of the significant saving, Sun said another major potential came from the newfound insights captured through the centralized eMPF Platform. Since employers would enroll new employee accounts and update their MPF contribution when employees’ salaries change through the eMPF Platform, MPFA could access a more comprehensive view of salary trends and workforce movements.

“These insights allow MPFA to understand the workforce market better; it is also helpful for the government to make more accurate economic projections and planning,” he said.

In addition, Sun said the MPFA currently conducts an annual on-site audit with the trustee to ensure compliance and control of money laundering activities. The eMPF Platform would also allow MPFA to monitor accounts enrolments and contribution activities to identify abnormalities continuously.

Wai from Deloitte added that the eMPF Platform is also a great channel for MPFA to provide a standardized taxonomy to measure the risk of investment funds across different trustees for better benchmarking and education on individual investment strategies.

Higher visibility brings more opportunities

The trustees could also take advantage of the newfound insights to offer customers additional services like a retirement dashboard — an overview for individuals to trace their retirement saving targets from private and MPF investments and benchmark their targets with the market.

The insights could also help trustees and fund managers develop more investment options for customers, particularly for voluntary contributions.

Many employers voluntarily contribute 5% of the employees’ salaries, even when it exceeds the maximum mandated HKD1,500 monthly contribution. Employees have more flexibility for withdrawal and investment options with this additional voluntary portion, but the existing platforms made it quite complicated for these changes. Sun said trustees that could take advantage of the new insights from the eMPF Platform to review their offerings and raise awareness of retirement planning in the market could transform their pension business profitability.

For Hong Kong employers and HR professionals, the eMPF Platform also encourages digitalizing HR systems. It will also bring greater visibility to review compensation strategies for employers to drive better employee experience and stronger talent retention strategy.

Meanwhile, as the development of the eMPF Platform continues, Sun noted careful infrastructure planning is just as important as a good user experience for the success of this massive digitalization project.

On top of ensuring cybersecurity and integrity of the eMPF Platform, enabling high availability is also a significant challenge. He said the centralized platform would be handling massive administrative transactions daily, putting a lot of pressure on the system.

“Ensuring high availability is critical to protect the platform’s integrity. It is going to handle fund and schemes switching, which will incur significant financial impact for many, in case of any system outage,” said Sun.

“No stakeholder in the MPF ecosystem will be immune from the changes that will take place,” noted PwC. “The market players should continue to refine their target operating model and ensure it interlinks closely with the details of the eMPF platform and identify the necessary actions to take and being prepared now.”

Sheila Lam is the contributing editor of CDOTrends. Covering IT for 20 years as a journalist, she has witnessed the emergence, hype, and maturity of different technologies but is always excited about what's next. You can reach her at [email protected].

Image credit: iStockphoto/Diamond Dogs