The Supervisory Committee Managing Retirement, Compensation, Resignation and Severance Matters for Private School Teachers and Staff (SCMRC), the PTPF's supervisory body, says the TDF model is intended to address the mismatch between members' investment preferences and their actual demands for retirement.

The TDF model is scheduled to go live in late September this year. Under the model, contributions can be allocated between three fund options in its member choice platform, which was introduced in March 2013.

For example, the investment portfolio is structured to allocate 80% to the aggressive option and 20% to the stable option for those aged between 31 and 35. The asset mix reallocates every five years until age 45, and then every two years between ages 46 and 55. For example, it is structured to have 100% in the stable option between ages 46 and 47, and then 80% in the stable option and 20% in the conservative option between ages 48 and 49.

Speaking in an exclusive interview with Asia Asset Management, Lai Jin-Nan, executive secretary of the SCMRC, says the introduction of the TDF model is very significant because it gradually shifts fund allocations from aggressive to conservative as members near retirement.

The PTPF is the first retirement scheme in Taiwan to introduce a member choice platform. Under the platform, members' investment portfolios are sub-divided into three different options - conservative, stable, and aggressive – according to risk.

For instance, the conservative option is structured to allocate a maximum 20% in equities and a minimum 34% in money market funds. The aggressive option can have 40%-70% in equities.
Imbalanced fund distribution
Although members have autonomy in the selection of funds, Mr. Lai says it has been less evenly distributed than what the SCMRC had expected. "Currently, about 86% of members opt for the conservative option, against 8% for the stable option and 6% for the aggressive option. Although the members selecting [the] conservative option went down slightly from more than 90% in 2013, the portion is still very high."

He continues: "Over the past few years, we've put enormous effort on investor education to help members select their fund options more wisely. In addition, the bureau provides a mechanism for assessment of risk tolerance to pension members to help them choose the most appropriate vehicles for their level of risk tolerance."

However, only a handful of members received the assessments," he adds. "Disappointingly, about 84% [of] total members did not select their fund options. Under the default system, their contributions are automatically diverted to the conservative option."

On a brighter note, Mr. Lai expects the TDF model to play an important role as the "fourth choice" alongside the three existing investment options, adding that its portfolio allocation is structured in a way that dovetails with the change in members' risk tolerance through their life cycle.

He says although the SCMRC came up with the TDF initiative in 2015, it will only become available later this year as Chinatrust, the pension fund's custodian bank, had to develop a dedicated system for the model.

"We don't expect it will prompt the members to shift their contributions to the TDF option within a short period of time, but we believe it will gradually improve the imbalance in the longer term," he says. The SCMRC is also planning to include a default system to the TDF model so that members who don't select their options "can benefit from a more balanced and dynamic portfolio allocation", he adds.

Performance wise, the aggressive option posted a return of 2.2% in 2016, the stable option, 1.8%, and the conservative option, 1.22%. The annualised returns between 2013 and 2016 were 4.3%, 5.5%, and 1.8%, respectively.
"Overall, we're satisfied with the investment results secured by the three options so far. AII of them were able to beat the benchmark local two-year fixed deposit return during the period," Mr. Lai says.

He points out that the PTPF has used an external investment consultant for its portfolio strategy, saying: "Since 2017, the PTPF has appointed Capital Securities Investment Trust Co to replace Franklin Templeton Investments as its new investment consultant."

The PTPF's total AUM grew 14.1 % year-on-year to approximately NT$39.5 billion (US$1.29 billion) as at the end of 2016, from NT$34.6 billion a year earlier. The number of members in the retirement scheme has dropped to about 59,000 currently from about 64,000 at its inception in 2010, which Mr. Lai attributes to Taiwan's low birth rate.

Source：Asia Asset Management