There is no doubt that securing sufficient retirement protection is the greatest concern for Hong Kong people nowadays — aside from meeting their need for decent housing. This isn’t too hard to understand, given that about 30 percent of the city’s elderly population lives below the official poverty line today.
It is logical to foresee that the retirement shortfall of local residents would persist, if not worsen, in future amid an ever-shrinking family size and growing average longevity. Hong Kong society is under tremendous pressure to bridge the retirement protection gap. Any proposals or measures aiming to achieve that end are therefore welcome. The proposals brought up by the Hong Kong Investment Funds Association (HKIFA) on Thursday are well worth considering. This is not only because they are intended to enhance the performance of the Mandatory Provident Fund, the only compulsory saving plan implemented in the city, but because they come up with further measures to strengthen other pillars of retirement protection.
Public attention and discussion have long focused on the MPF when talking about retirement protection, with growing criticism of its frustratingly poor investment performance, which has been partly blamed on the high administrative fees charged by fund managers. The HKIFA’s proposals to reduce regulatory impediments will no doubt help enhance management efficiency, and therefore hopefully lower management costs of MPF funds and improve their investment performance; its other proposals to expand the investable universe could also help boost the investment performance of MPF funds.
But however significant the improvement in investment performance achieved with whatever measures, the MPF system alone will not be able to provide sufficient retirement protection for all elderly residents in the city. With the scheme having been implemented for a relatively short period — only 16 years — many residents who had retired before its inception in 2001 have no MPF account at all. And many more people who have retired in recent years, or who will retire in the next few years, could hardly have accumulated in their MPF account an amount big enough to cover their retirement needs. This is because of the short accumulation period, the low contribution rate (only 5 percent of the monthly salary), and the low investment return rate — largely due to the essentially conservative nature of MPF funds.
It is therefore both logical and imperative for society to look beyond MPF for retirement protection for elderly citizens. This is where the concept of a “multi-pillar” retirement protection system arises from. This system should include both private and public efforts. Private retirement protection could be realized via personal savings, savings-related insurance policies, private annuities and private properties which can be cashed through reverse mortgages. Public provision of retirement protection includes public housing, the means-tested Comprehensive Social Security Allowance, the universal Old Age Allowance, the Old Age Living Allowance, public healthcare and elderly healthcare vouchers. In the absence of a universal pension plan, the SAR government has put greater effort into enhancing other pillars of retirement protection in recent years. This includes the HK$10 billion public annuity scheme announced by the government last week.