There is an interesting contradiction at work in Hong Kong’s financial sector. On the one hand, the ORSO regulations are among the most flexible and beneficial in the world for both domestic and expatriate pension schemes and on the other they are bogged down in an administrative quagmire that results in high costs, restricted investment choice, and infrequent, inaccurate reporting. This means that companies are paying a lot of money to administer poor quality schemes that detract from HR programs, while disillusioned scheme members tend to add only minimum amounts to their employers’ contributions. Ultimately this means that people will retire on inadequate incomes, their working children will step in to make up the difference and consequently find it difficult to save enough for their own retirement. Change is needed urgently to prevent this vicious cycle from becoming established.

Group pension schemes by their nature are complex. They can have hundreds or thousands of members and complex demographics that demand intensive administration – all of which is done with little more than the help of an Excel spreadsheet and a fax machine. Monthly contributions from the company and employees, leavers, joiners, investment allocation and switches tie up the average Hong Kong HR department by around 120 hours a month. One easy way to limit the administrative burden is to restrict investment choice to one fund management house, or a limited range of funds and to allow only up to four switches a year – on specified dates. This is so commonplace that many people believe that the restrictions come from the regulations rather than the scheme, which is patently not the case.

Further high costs come with the funds that are made available for investment that typically carry charges of 5%, which takes a big bite out of any gains an investor may be looking to consolidate, or adds to the misery when losses are being cut. And imagine the errors that occur when a faxed instruction is sent from a scheme to a trustee, to a fund management company and then all the way back again when the paper contract note is generated. Many scheme administrators and trustees admit that reconciliation is practically impossible and are forced to carry forward compounding errors from one year to the next.

With Hong Kong regarded as one of the world’s leading financial centres, expatriates from Australia, UK and US are invariably shocked by how backward its pensions industry is and compare it to the situation in their home countries 25 years ago.

So how can Hong Kong pensions be brought into the 21^st century so as to satisfy their stakeholders and take advantage of the highly favorable underlying legislation?

It requires technological innovation on the part of those supplying a solution and just a little vision on behalf of the first few companies to break the mould. Like many of history’s most successful innovations – the motor car springs to mind - it does not require anything new, but rather a combination of existing technologies working in harmony in order to solve a particular problem.

WealthCraft Systems, together with Hong Kong pensions consultants, Indigo and OneVue, a leading Australian provider of portfolio administration services, have developed a secure, web-based solution that:

-         cuts administration costs and manual processing to companies by up to 80%

-         provides a wide range of investment funds with no initial charges

-         a range of analysis tools to enable informed investment choices

-         uses encrypted SWIFT messaging for all transactions. This Straight Through Process truly eliminates errors and increases security

-         enables scheme members, HR departments and trustees to view accurate, real-time statements on demand

-         automates day-to-day scheme administration, such as managing contributions, leavers, joiners and employees transferring to overseas offices

WealthCraft’s Advisor Work Bench and FundsMX systems provide member administration, investment decision-making tools and the dealing platform respectively, while OneVue’s Unit Registry provides the statements and reporting systems. Indigo’s involvement ensures that the solution works effectively for employers and employees. This integrated solution has been launched as the Pension Automated Solution (PAS).

PAS is being currently implemented for its first clients and is expected to gain popularity quickly as the benefits become recognized in the marketplace and ORSO group schemes fulfill their potential as one of the most flexible, cost-efficient savings vehicles available anywhere in the world.

WealthCraft Systems Limited will also be at Sibos 2009 at Booth 3G15 from 14^th to 18^th Sept, so come and see us for a further discussion if you are going to be there.