Hong Kong pension fund surges 13% in 2024, boosting retirement savings

[WORLD] The Mandatory Provident Fund (MPF), Hong Kong's primary pension scheme, delivered an impressive 13% return in 2024, marking the best performance in four years for the city's 4.75 million members. This substantial growth has significantly boosted retirement savings, providing a much-needed financial cushion for Hong Kong's workforce.

Record-Breaking Returns

The MPF's stellar performance in 2024 resulted in a combined earnings of HK$102.4 billion (US$13 billion), translating to an average gain of HK$21,500 per member. This remarkable achievement stands in stark contrast to the previous years' results, with 2024's returns far outpacing the 3.5% gain in 2023 and reversing the 15.7% loss experienced in 2022.

Mark Konyn, chief investment officer with AIA, one of the major MPF providers, commented on the year's success, stating, "2024 has been a productive year for investors. Reducing inflation and positive overall returns have supported the growth of retirement savings".

MPF Performance Breakdown

Asset Growth and Member Benefits

The strong performance in 2024 propelled the MPF's total assets to an impressive HK$1.29 trillion. This growth, which accounts for both investment gains and new contributions, equates to an average of HK$271,500 per member – a 13% increase from the previous year. On average, each member's portfolio saw a boost of HK$31,600.

Fund Performance

The 379 MPF investment funds generated an average return of 8.8% for the year. This performance is particularly noteworthy when compared to recent years:

2024: 8.8% average return

2023: 3.5% gain

2022: 15.7% loss

2020: 11.4% gain (previous best performance)

Factors Contributing to MPF Success

Several key factors contributed to the MPF's exceptional performance in 2024:

Global Market Growth: Despite various uncertainties, global markets continued to show strong growth throughout the year.

Equity Fund Performance: The equity fund index led the charge with growth exceeding 10%.

US Stock Market Dominance: Funds tracking the US stock market demonstrated the best performance, with a year-on-year increase of 23.3%.

Diversified Market Gains: Following the US, funds focusing on Japan, Hong Kong, and China stock markets also showed significant growth.

Positive Returns Across Asset Classes: All three major asset class indices – equity, mixed asset, and fixed income – recorded positive returns.

Impact on Hong Kong's Workforce

The MPF's strong performance in 2024 has significant implications for Hong Kong's workforce:

Increased Retirement Security: The substantial growth in pension assets provides greater financial security for retirees.

Boosted Confidence: The positive returns may encourage more active participation and engagement with retirement planning.

Enhanced Long-term Outlook: The impressive gains contribute to a more optimistic long-term financial outlook for MPF members.

MPF System Overview

Established in 2000, Hong Kong's MPF is a compulsory retirement scheme designed to provide financial security for the city's aging population. Key features of the MPF include:

Mandatory Contributions: Both employers and employees contribute up to 5% of the employee's monthly salary.

Contribution Cap: Monthly contributions are capped at HK$3,000, split equally between employer and employee.

Investment Options: Members can choose from various funds to invest their contributions.

Retirement Age: Employees can access their contributions and investment earnings at age 65.

Expert Insights and Future Outlook

Financial experts and MPF consultants have provided valuable insights into the fund's performance and future prospects:

Michael Chan, managing director of GUM, an MPF consultant, expressed optimism about the continued upward trend in the first quarter of 2025. He noted, "This year, global markets will be influenced by US president-elect Trump's policies, with geopolitical issues and tariffs affecting the investment climate. For China, it is believed that the central government's policies will become more proactive and effective to maintain stable economic growth".

Chan also highlighted potential opportunities and risks for investors:

US Stocks: Optimistic outlook due to Trump's return to the White House and potential Federal rate cuts.

China and Hong Kong Markets: Positive influence expected from China's proactive fiscal and monetary policies.

Diversification: Warned against concentrating investments in a single market.

Conservative Approach: Suggested low-risk members consider conservative funds for stable returns.

Comparative Analysis: Hong Kong vs. Global Retirement Trends

While Hong Kong's MPF showed impressive growth in 2024, it's essential to consider this performance within the broader context of global retirement trends:

Interest Rate Impact: Global retirement indices have highlighted the shift from ultra-low interest rates to higher rates, presenting both opportunities and challenges for retirees.

Cash Allocation Risks: With over $6 trillion invested in money markets globally, experts warn about the risks of overallocating to cash despite attractive short-term yields.

Diversification Importance: 83% of fund selectors emphasize the need for retirees to diversify their income investments beyond cash.

Bond Market Opportunities: Experts suggest considering government and investment-grade corporate bonds for more consistent long-term income streams.

The MPF's outstanding 13% return in 2024 represents a significant milestone for Hong Kong's pension system. This performance not only provides immediate financial benefits to the city's workforce but also strengthens confidence in the long-term viability of the retirement scheme.

As global economic conditions continue to evolve, MPF members and administrators alike must remain vigilant and adaptive. The success of 2024 serves as a reminder of the importance of well-managed, diversified retirement portfolios in securing financial stability for Hong Kong's aging population.

While celebrating this achievement, it's crucial for both individual members and policymakers to continue focusing on strategies that will ensure sustained growth and security in the face of future economic challenges. The MPF's strong performance in 2024 provides a solid foundation for building an even more robust and resilient pension system for Hong Kong's future.