China should clone Hong Kong’s pension model, says MPF Authority chairman

Hong Kong’s Mandatory Provident Fund (MPF) provides a role model for mainland China’s reform of the state pension system as the Chinese government replaces its cradle-to-grave welfare with market practices, said the MPF’s chairman.

“Employees in Hong Kong are clear how much money they will have after retirement, they know they will get it in cash and it won’t be gone,” said David Wong Yau-kar, chairman of the MPF Authority and delegate to the National People’s Congress, during an interview with the South China Morning Post in Beijing. “The working class is yet to be the real beneficiary of the pension system in China, as the return is inappropriately low in comparison to their contributions.”

Despite some unsolved issues within the MPF system, the transparent and efficient nature of the scheme sets a good example for China’s pension system reform, Wong said.

The current pension system in China has been criticised as being opaque and confusing. Another frequent gripe according to Wong is that contributors are unable to identify linkages between their contributions and returns, which undermines trust in the entire system.

Acknowledging that Hong Kong’s MPF scheme is also beset with issues including high management fees and exclusion of voluntary contribution from tax deductibility, Wong believes it nevertheless provides a good model for mainland China, as the contributions under the MPF are held in an individual’s personal account.