Paying the government HK$1 million in exchange for a pension of up to HK$5,800 a month may sound stupid. But in a society where life after retirement is far from adequately protected, this does offer many retirees a real choice.
Some call it a bet on life expectancy.
That comparison is true – for the longer a pensioner lives, the greater the dividends he or she will get. The only chance it would lead to a loss is if the pensioner dies young – before reaching 80 – assuming they join the government annuity scheme at 65.
But it should be a safe bet since their beneficiaries would continue to receive the payments, unless they don’t have the patience to sit out the initial period. In such cases, the amount won’t be returned in full.
So, is the scheme as unattractive as some have claimed? I think not.
It’s attractive for many, except for those who think they’re smarter than the Hong Kong Monetary Authority, which will be responsible for managing the funds, to be collected by a subsidiary created by the Hong Kong Mortgage Corp and passed on to HKMA.
Known as the HKMC Annuity Plan, its registration opened yesterday. Residents aged 65 or older have until August 8 to enter their intent to subscribe to the first tranche of HK$10 billion. According to Financial Secretary Paul Chan Mo-po, that would most likely double to HK$20 billion if demand is overwhelming.
Under the annuity scheme, residents investing the maximum HK$1 million will get HK$5,300 a month for women, and HK$5,800 for men, the gap being due to their different life expectancies.
The minimum subscription is HK$50,000, which will generate HK$265 for women, and HK$290 for men monthly.
However, I must say the most interesting aspect is that the annuity scheme should be viewed together with the Higher Old Age Living Allowance.
Curiously, the government is rather forthcoming on this, even revealing how the Sandwich Class – those considered too “rich” to claim the allowance, but too “poor” to lead a retired life without fear – may tap the maximum benefits using the annuity scheme.
The official website cited the case of a 65-year-old man now receiving a pension of HK$2,500 a month, and who has assets worth HK$600,000. Since his assets exceed the HK$146,000 limit, he can’t apply for the higher old age allowance, currently set at HK$3,485 monthly.
But he would be able to apply for the allowance if he puts HK$500,000 into the annuity plan. Then, he may expect to have HK$8,885 in total – HK$2,500 as currently received, HK$2,900 from the annuity plan, and HK$3,485 in old age allowance – every month.
That’s not too shabby, eh?
Understandably, the attraction begins to drop along with one’s wealth. But then they obviously aren’t the targets the government aims at helping under the plan. In the absence of comprehensive retirement protection, this is a feasible way to meet the needs of the sandwich class.