Growing old disgracefully – improving Hong Kong pension rules to fit the reality of the retired
Simplest way to match competing cash flow requirements is to scrap retirement age
My idea of old age has always been one of being tenderly looked after by young nurses, no older than 22; dressed in short, crisp, white cotton uniforms.
So my attention was grabbed by a recent note from my Mandatory Provident Fund provider, which discussed the early withdrawal of my funds at age 60. Now that I am into the Year of the Fire Monkey, using my savings to do so many things currently left undone, is increasingly attractive.
Hong Kong does not do “retirement” well; we mistakenly think of ourselves as a young society. The word is a misnomer. To many it now means quitting the rat race to work elsewhere – which may be more interesting, if less lucrative. So after combing the world for wisdom, I have returned with two key lessons from those older and wiser about the process of shifting course.
My first contact was an active old lady who lectured that the years between 60 and 70 are very important. If lucky, one is still relatively healthy, with energy, vision and unparalleled wisdom. This is the decade to cease the daily grind; to get out and spend your money doing interesting things. Spending one’s savings may be a financial risk but it is also a reward of a 40-year career.
This is still work – not retirement. You may still be at it from 8am to 8pm like any other Hong Kong professional (or 24/7 in my case). It may be writing that book, learning to paint, sing or play the drums, appreciating the family, read for that PhD, explore an conceptually interesting area of work, travelling, walking, running that marathon, or sailing across the Atlantic. All the things that you have always wanted to do.
My dentist is a keen observer of his patients at different stages of the life cycle. Dentists and taxi drivers speak at length on any topic knowing that they have a captive audience, although the dentist has the added advantage of not being contradicted. My dentist believes that past 70 you need a lot less income as school fees are paid for, struggling children can struggle for themselves, and you have less energy to expend.
Ongoing expenses may well dwindle in your seventies but unfortunately exceptional expenses blight the landscape: replacing the car, major surgery, or nursing care fees. In cash flow terms, later life results in a mixture of recurrent and exceptional expenses; one low and known, and one entirely unpredictable. Squeezing the most out of a pension is therefore much more complex than just building up a chunk of “drop dead” money in life and hoping it lasts until the Grim Reaper comes calling. There must be a better way of matching these cash flows.
Modern medicine has made great advances on the common diseases that cause premature death and has made one’s sixties now a productive decade. Human organs appear to be designed to last 85 to 90 years, whereupon they all give up at the same time. Average life expectancies are unlikely to see much of a rise from today’s four score and five with current technology. Morbidly, this also provides a more reliable end point for most people’s retirement budgeting.
The simplest way to match these competing cash flow requirements is to scrap the retirement age completely. Older employees that add value should work when they want to put a little aside for exceptional expenses. My aircraft flying instructor is a young 75.
We have a system that deliberately destroys economic value by forcefully removing significant human talent and experience out of the economy. Perhaps the only remaining use for a retirement age is to pension off civil servants and ministers who outlive their usefulness.
We already need a root and branch reform of our pension provision in Hong Kong so it would not be hard to develop a new concept in practice. Pensions, like my miniscule MPF, could provide the flat sum consistent with ongoing expenditure, while a new series of insurance products – either private or government sponsored – would better cover the exceptional expenses.
Modern careers increasingly involve checking in and out of the job market – job participation rates prove that. So it should not be a problem for sixty-somethings to take time off to experience body and mind-expanding activities that one was not able to enjoy in one’s youth. A life of work should still be available in our seventies – goodness knows, the younger generation needs our help.
Richard Harris is chief executive of Port Shelter Investment Management