Ongoing challenges faced by the MPF
Anna Wu says ensuring security forHong Kong's rapidly ageing population through the ambitious MPF scheme requires longer-term changes to ensure the system is robust enough for the job
The Mandatory Provident Fund was launched in 2000 to address, in part, the challenge of financing the retirement of a quickly ageing population. Its net assets had reached HK$455 billion at the end of March and the annualised rate of return over the past 12 years has been 4 per cent.
Compared with an inflation rate of around 1.4 per cent over the same period, MPF benefits are, on average, earning investment returns above inflation.
The scheme is often criticised for its administrative complexity, not providing adequate retirement protection, charging high fees and providing poor investment returns. The adequacy issue has at least three aspects - coverage, interaction with other retirement protection measures, and leakage.
On the first two, it is often overlooked that the MPF was set up as the second pillar under the World Bank's three-pillar retirement protection approach. [The other pillars are a state-run pension system and voluntary, private-funded accounts]. All three must work together to provide sufficient protection for the community.
By design, it was not intended to cover those not in employment. It is, however, noteworthy that, before 2000, only around 30 per cent of employed people had any formal pension coverage. Now 84 per cent have. This is a measure of its success.
We recognise that the contribution rate is low and adequacy for retirement remains a serious concern. A taskforce under the Commission on Poverty has commissioned a study on the future direction of retirement protection. The government has also set up a working group to explore ways for public finances to cope with the ageing population. We look forward to hearing the deliberations of these two groups.