People know best what to do with their own money
By eating away at retirement savings, the MPF does the opposite of what it was intended to do
Jake van der Kamp
The Mandatory Provident Fund is a good thing because it forces very low income groups to save money, which they otherwise might not do.
Letter to the editor,
This letter writer recommended a number of administrative improvements to the MPF, all of which I think are fine ideas. But the premise on which they are based I think is weak.
It has yet to be proven that low-income groups do not save money unless they are forced to do so or, if this is true, that they are not right in considering food on the table more important than investment of food money. Bear in mind the Churchillian aphorism that the best investment society ever makes is putting milk into babies.
You would ordinarily think that proving need is the foremost requirement of a mandatory retirement savings scheme. Before even suggesting such a scheme there ought to be a comprehensive survey of how much money people already save for their retirement and whether it is sufficient to cover retirement needs.
But our bureaucrats are not ordinary thinkers when pondering financial matters. They then become true out-of-the-box thinkers, looking at matters in ways that defy ordinary thought. Their decision to proceed with the MPF, for instance, was based on the observation that Singapore has a forced savings scheme and therefore Hong Kong ought to have one too.
It went no further than that. There was no survey, no in-depth study, nothing but a bald assertion that Hong Kong people do not save enough money for retirement.
It is entirely true of the bureaucrats themselves, of course. They do not have to save any money. They have the sweetest pensions of anyone in this town and enjoy them from age 60 onwards, earlier if they want. This is after careers in which their income from salaries and perks is three times the average of what equivalent jobs are paid in the private sector. Yes, you should be so lucky.
Let's look at things another way. Out of every HK$100 that a household earns after tax we shall assume that an average of HK$30 goes to mortgage payment or rent (less for public housing, more for private) and another HK$30 to basic necessities - food, clothing, transport etc. We shall add in another HK$10 for miscellaneous items and I can run a very long list of these if you want.
We now have HK$30 out of that HK$100 left as disposable income and that's being generous. I think the more likely average figure is HK$20 at best. This is the money that the household has available to invest or squander.
It is my belief that few households squander it, that historically most have invested it in ways in which they can take an active personal role. Mrs Chan, for instance, may have an uncle with a leung ngan plantation in Chiang Mai and be able to ship the fruit in at a special low rate if she can put up a little money. Her son may have a chance at a share of a car repair shop but needs to put up money for some equipment.
It is my belief again that people look for and generally achieve an annual return on equity of at least 20 per cent in these sorts of ventures. They get it because they have come to know these businesses and because they put their backs as well as their money into them.
I cannot prove it. The necessary retirement savings studies were never conducted. But 33 years of being involved in various ways in the investment business in this town tell me that these are approximately the right numbers.
These people, however, no longer have that HK$30 of disposable income available to make these personal investments. The MPF has taken away HK$10, a third of it, for investment in boring, big go-nowhere stocks.
And what little profit these people may have been able to derive from this diversion of their savings is instead eaten up by the thieving fees that our bureaucrats have allowed MPF managers to charge the working public.
It is thus my contention that the MPF has done the opposite of what it was intended to do. It has not created retirement savings. It has rather eaten away at the retirement savings that people would otherwise have generated for themselves.