• Hong Kong’s MPF ranked 32nd on a list of 34 global pension schemes in terms of adequacy

Hong Kong’s Mandatory Provident Fund ranks among the least adequate in the world in terms of seeing to the future needs of pensioners, ranking ahead of only India and Mexico among 34 worldwide markets tracked in a global study by pension consultancy Mercer.

The city’s mandatory pension fund scored 39.4 on an adequacy ranking of 100, which is below the global average at 61.1, ahead of India at 38.7 and Mexico at 37.3, according to the 2018 Melbourne Mercer Global Pension Index released on Monday.

Germany ranked top with an adequacy ranking of 79.9, followed by France at 79.5 and Denmark at 77.5, the Mercer report said.

This is the 10th annual report by Mercer but the first inclusion of Hong Kong. The index compares and give scores to different pension systems based on three aspects – adequacy, sustainability and integrity.

Stewart Aldcroft, chairman of Cititrust, derided Hong Kong MPF’s contribution level as “too low, too little to create a meaningful pool of money”.

The MPF requires employers and employees to each contribute 5 per cent of the individual’s salary at a combined contribution cap at HK$3,000 (US$382.55) a month.

In comparison, Singapore’s scheme requires employers to pay 17 per cent and employees 20 per cent of the monthly salary without a cap.

Malaysia’s scheme requires employers to pay 13 per cent and employees to pay 11 per cent of monthly salary without a cap.

On a broader scale that included sustainability and integrity, Hong Kong’s MPF was given an overall score of “C”, or third in Asia, trailing Singapore and Malaysia.

“Hong Kong lost out to Singapore and Malaysia in Asia as the MPF has a shorter history and much lower contribution level,” said Rex Auyeung, a retired pension expert.

“Malaysia’s Employees Provident Fund was set up in 1952 which was the earliest pension scheme in Asia. Singapore came slightly later when it launched the Central Provident Fund in 1955. In comparison, Hong Kong is almost half a century behind as the MPF started only in year 2000,” Auyeung said.

Still, pension experts said the local monthly contribution levels needed to be bumped up to keep pace with other progressive retirement schemes.

“At such a low level of contribution, even for those who start to contribute to the MPF at age 20, it would not be enough for their retirement at age 65,” Aldcroft said.

“The government should introduce more tax incentives to encourage both companies and individuals to voluntarily contribute more to the MPF,” he said.

Financial Secretary Paul Chan Mo-po in February proposed to give tax deduction of up to HK$36,000 a year for those who voluntarily top up their MPF.

“If Hong Kong MPF wants to catch up with other pension schemes, the government should increase the contribution level to 7 or 10 per cent, or even higher. It should also remove the combined contribution cap at HK$3,000 as the higher income group could afford to pay more. The government should also consider a basic allowance to all pensioners, in addition of the MPF,” Auyeung said.

Janet Li, wealth business leader for Asia at Mercer, said the MPF and other pension plans last year matched only about 45 per cent of the income earned by men before retirement in Hong Kong, and about 50 per cent for women. This was below the replacement ratio of 63 per cent in Organisation for Economic Co-operation and Development countries.

“This shows Hong Kong retirement plans did not offer enough to retirees. Besides the low contribution rate of the MPF, this was also because of the lack of other social security [options made available] by the government,” said Li.

She, however, said Hong Kong’s pension rating should be higher in the same study next year.

“The Hong Kong government has already announced a plan to offer tax incentives, to encourage voluntarily contributions to the MPF, next year. It has also proposed a plan to scrap the offset mechanism to improve the MPF,” said Li.

Kenrick Chung, chief commercial officer of Charter Management Group, said a tax incentive would encourage more voluntarily MPF contributions.

“However, Hong Kong should not push a mandatory increase in the contribution level similar to Singapore’s CPF. Hongkongers would prefer to keep more salary for their own use,” Chung said.

“The Hong Kong government should allow employees to withdraw some money from the pension plan to buy their own home or for medical use, as is the case in Singapore and Malaysia,” Chung said.

A spokeswoman of the Mandatory Provident Fund Schemes Authority said the authority will assess contribution levels as part of its review every four years.

“Any change to the current statutory requirements, be it the contribution rate or the maximum income level, needs to be thoroughly discussed and considered by different stakeholders in the community,” she said. “The MPFA always encourages scheme members to get an early start in planning for retirement and to save more for their retirement, for example, by making voluntary contributions.”

Still, many Malaysian pensioners say it can be hard to make ends meet under the current contribution levels.

A 69-year-old Malaysian who identified himself as a retired insurance executive said the Malaysian EPF may be good for higher income groups, but is not sufficient for everyone.

“For low income groups, especially, it will not be enough, especially if the retirees’ lifespan is long,” he said.

“Many retirees continue to work part time or full time to supplement his or her income. Some become Uber or Grab drivers for this purpose,” he said.

Northern European countries ranked top of the Mercer pension index with Netherlands at 80.3 and Denmark at 80.2. Argentina ranked bottom of the global list with 39.2.

The Mercer report said Hong Kong should consider tax incentives and increase the labour force participation rate for older workers.

Mainland China scored 46.2 this year, down slightly from 46.5 in 2017. Mercer urged mainland officials to increase the minimum level of support to the poorest individuals and to offer more investment choices for members.

(Corrects India’s ranking to 38.3 in second paragraph.)

This article appeared in the South China Morning Post print edition as: HK pension scheme scores low marks on adequacy


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Vastly increased proposal comes as officials keep trying to scrap pension scheme’s controversial offsetting mechanism

Hong Kong leader Carrie Lam Cheng Yuet-ngor’s cabinet on Tuesday approved a proposal that drastically increases the subsidy the government offers to employers to stop them from tapping into staff pension funds.


The latest offer was much more generous than the first proposal by the previous administration under Leung Chun-ying last year, who offered a subsidy of HK$7.9 billion (US$1 billion) over 10 years.

The move came amid the government’s attempts to scrap the controversial offsetting mechanism for the Mandatory Provident Fund (MPF) – the city’s pension scheme. Under the scheme, employers are allowed to offset their staff’s long service and severance payments with the bosses’ contribution to employees’ MPF accounts.

Labour unionists have for years hit out at the mechanism, saying some workers have barely any long service or severance payments left after the offsetting. Last year, employers offset HK$4.2 billion (US$540 million).


The latest proposal was an apparent bid to calm the business sector’s anger. Hong Kong’s small- to medium-sized enterprises have demanded indefinite subsidies, while the city’s five biggest business organisations have demanded more subsidies.

Details of the latest proposal approved by the Exco remain unclear.

But in March, the government put forward a plan in which bosses would no longer be allowed to do offsetting. Bosses would set up a savings account and contribute one per cent of employees’ wages to pay for the long service and severance payments. The money in that account would be capped at 15 per cent of a worker’s annual wage.

In that proposal, the government would provide HK$17.2 billion to employers for 12 years. But the new plan increases the amount to HK$29 billion and increases the period to 25 years.

The subsidy scheme would be rolled out as a complex, two-tiered system with employers getting less subsidies over the years.

Source: SCMP
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It’s disappointing that only 9,410 elderly have expressed interest in subscribing to less than half of the government’s much ballyhooed HK$10 billion annuity scheme.

Financial Secretary Paul Chan Mo-po had anticipated a far more enthusiastic response – with promises to double the amount to HK$20 billion should demand for the innovative annuity plan be overwhelming.

Noticeably, there exists a large gap, and it’s plausible the numbers will fall even further when the moment comes for the elderly subscribers to actually fork over money.

But it would be unfair to judge the scheme by the responses to its debut. The Reverse Mortgage Programme has been gaining in popularity of late despite a similarly lukewarm public reaction at the start. It’s probable the public will show greater interest in the annuity as they understand it more.

As for a debut, the amount committed wasn’t as bad as some had feared. It’s only that officials had been too ambitious in drumming up expectations unrealistically. So the shock doubled when the outcome fell below target.

As I’ve said before, the plan’s greatest attraction is that members of the sandwich class can tap the extra source of government’s Higher Old Age Living Allowance by investing a substantial portion of their capital into the annuity plan so as to keep them within the income and asset limits for the allowance.

Then, they will also be able to receive a few thousand dollars more each month in old-age allowance on top of the monthly payment guaranteed by the public annuity plan.

It’s rather unfortunate that the annuity scheme was launched at a time when local interest rates were about to start climbing after multiple interest rate hikes in the United States, which renders the 4-percent return guaranteed by the scheme less attractive.

With US interest rates having been raised seven times since the end of 2015 – along with more hikes predicted for the near future – it’s only a matter of time before Hong Kong banks will have to follow suit. In fact, the cost of mortgages are already on the rise.

As expectations about interest rates change, perceptions of the annuity’s guaranteed yield are bound to shift too.

Meanwhile, corrections in the financial market on the heels of US President Donald Trump’s trade war with China are likely turning some senior investors’ attention from the annuity scheme to the stock market for bargains despite the higher risks involved in equities.

Those developing factors are beyond the control of the Hong Kong Mortgage Corporation.

However, the HKMC – which administers the annuity fund via a newly created subsidiary – may still review its marketing policy and the product design before it launches the second tranche for public subscription.

It was evident in the first phase that banking staff were lukewarm in selling clients the annuity plan that earned them no commission, and second, the plan’s synergy with other old-age benefits was not emphasized enough to reflect its true merits.

A review of the current setbacks will be needed prior to the next launch.

Source: The Standard
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Online registration for the life-annuity scheme for seniors has been extended until 11.59pm tonight due to website problems.

Hong Kong Mortgage Corp said emergency repairs were being made and so the deadline was extended by a day. But the forms’ collection time of agent banks remained unchanged and closed yesterday.

HKMC said it “sincerely apologizes for the situation” and another announcement will be made upon the resumption of services.

HKMC chief Edmond Lau Ying-pan said the scheme is more popular among those aged 65 to 70. Lau also said the 4 percent rate of return is unlikely to be adjusted.

But he did not rule out a possible increase in the maximum amount a subscriber can invest. It is currently HK$1 million.

Applicants can invest in a single premium ranging from HK$50,000 to HK$1 million in exchange for monthly payments.

For a single premium of a maximum HK$1 million, the guaranteed monthly annuity payment for a 65-year-old man would be HK$5,800, while it is HK$5,300 for women.

Applicants will receive notices of allotment from next month.

Source: The Standard
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