Failed MPF scheme should be wound up
Six in every 10 Hong Kong people believe that the Mandatory Provident Fund fails to address their retirement needs, a Hong Kong Polytechnic University survey has found.
SCMP, Sept 8
I stand amazed. Do they mean to tell me that as many as four out of every 10 people in this town actually believe that their MPF investments will give them enough money to live on in retirement?
I wouldn't have thought it possible, I mean that so many people should believe this. It certainly isn't possible to get enough back from the MPF for retirement.
Let's just try one statistic. The chart below shows you the total net asset value of MPF funds per enrolled beneficiary. The latest figure comes to HK$125,163. Put that in the bank and see how many minutes you can live off the interest payments it will pay you these days.
Of course, this is an average figure. Some MPF beneficiaries have been in the plan longer and put more money into it. They will get more back. Others are more recently enrolled and have less savings in the MPF.
In addition, the total asset figure will continue rising with regular monthly contributions. It may also be pushed further up if financial markets remain buoyant. It is not altogether impossible that at some point a beneficiary can claim he has enough for retirement from the MPF.
But that point is still some time away, a long time with a scheme that takes only 5 per cent of an employee's wage from the employee and 5 per cent from the employer.
The obvious contrast here is Singapore, where the comparable Central Provident Fund takes a total gouge of 34.5 per cent out of every paycheque and has built up a net asset value per active member of S$105,000 at present, about five times the equivalent level in Hong Kong. Singaporeans can also take out a large proportion of their money ahead of retirement for a range of defined purposes including medical expenses and home purchase.
But even in Singapore people can be heard to say that it is not enough and they need more for retirement. The obvious conclusion here would appear to be that Hong Kong needs to raise its MPF contribution rate.
And yet I'm not so sure. A 10 per cent contribution rate (let's not fool ourselves about where the employer really get his 5 per cent) may not seem much as a percentage of total pay but is a much higher percentage of disposable income.
Deduct tax, housing costs, food and clothing, medical costs, rates, electricity, school fees and you know yourself how long this list of unavoidables can go. What do you have left at the end of it? I would guess for most people that figure would be no more than 20 to 30 per cent of their pay. All of a sudden that 10 per cent MPF rate turns into 50 per cent of disposable income and now it is very significant indeed.
It is particularly so because this is money that people might want in order to start a business. It is what many people have in mind as the eventual source of their retirement income and it holds out the prospect of a sufficiently high return. But suddenly the money is taken away.
And what does the MPF do with it? The answer is that it mostly goes into a line of boring old blue chips on the local stock market because the client is a captive and cannot escape the MPF. Why devote time to such a client. You get his fee whether you work for it or not.
Things are actually worse than this. MPF administration fees are generally high and there are many niggling costs aside from the straight fees. It is easily possible for them to eat up as much as half of the investment gains that an MPF beneficiary could otherwise expect.
Here is what it comes down to. The Polytech thinks that the employer contribution should be higher. They actually, hah-hah, believe that the money doesn't really come out of wages. They think this will solve the problem.
I take the view that it can't be solved. People in Hong Kong will not put up with Singapore style contribution rates but, without them, the MPF will never give retirees more than pocket money. I think the MPF should be wound up.
It will never happen. But it's still the best idea.