On December 1, Hong Kong introduces its first compulsory retirement scheme, the Mandatory Provident Fund (MPF). But around 84% of the city's 300,000 employers have yet to sign up a pension provider - resulting in intense market competition. Second-tier firms have relied on a well-honed sales pitch: they may not be the biggest or the cheapest, but they more than make up for that in terms of service. But even this advantage may soon be eroded, due to a new marketing ploy launched this month by one of the largest pension providers in the MPF market.
In a bid to boost sales, Manulife has promised to pay fund investors HK$100 ($12.82) each time it fails to deliver some of its services on time. These services include setting up membership records, carrying out fund-switching orders from investors, delivering quarterly benefit statements, and the issuance of cheques upon withdrawal or transferal of benefits from funds.
To qualify for the 'money-back guarantee', as it is being promoted, investors must have filled out the forms correctly, so the correspondence should have been received and delivered by the right party and the relevant paperwork finished on time. Other than that, says Belinda Luk, Manulife's vice-president of customer relations management, "We have no get-out clauses."
Desperate measures?
Manulife's move is seen as a response to growing concern among some sections of the pension industry that insurers are not signing up as many employers as they would like, and therefore need aggressive strategies to shore up sales. But Luk dismisses such claims, saying: "If the MPFA [Mandatory Provident Fund Authority, the scheme regulator] is allowed to [vouch for us], they would tell you that our sales is right on target, probably either number one or number two." Luk says Manulife decided to shift its marketing focus towards service delivery because it believes the media's relentless reporting on price levels is misrepresentative, and will soon run out of steam.
The move has been largely welcomed by the industry. Says Julia Wong, CMG Asia's MPF director: "I'm glad to see something like this happening in the industry. It is good in the sense that it will push the industry to have a performance pitch." On whether Manulife's service guarantee will affect CMG's sales, Wong says: "It will not make our agents' work more difficult. We have already put in our service benchmark which is comparable to that of the better providers."
But Stewart Aldcroft, Standard Chartered's business development chief, investment services, says Manulife's service guarantee is an aggressive move that will hurt providers who are either small in the Hong Kong market or have little pension administration experience. "There are a lot of secondary insurers whose large team of sales people are the people who'll probably sign up a lot of one-, two-man businesses. This segment of the market is not particularly attractive because the profit margin is low in proportion to the administrative tasks that have to be performed to service them."
But even then, the task for providers in the small business segment may not be nearly as difficult for providers in the so-called industry pension scheme category. The industry scheme runs in parallel to the MPF scheme for the two industries that have the most transient workforce: construction and hospitality & catering.
The high turnover nature in the hospitality & catering businesses and the cascading structure of the subcontracting system in the construction industry mean the volume of services demanded from providers will be large but profits small, making the job of industry scheme providers the least attractive in the overall MPF market. The two industry scheme providers are Bank of East Asia and Bank Consortium, a consortium formed by 10 Chinese banks to enter the MPF market.
