ANYONE who believes that the Mandatory Provident Fund, when it finally arrives, will provide a dignified old age had better like congee and tea. Forget the shark's fin and cognac. Delays have dogged the MPF's introduction to the point that some investment professionals doubt it will be launched in 2000. Each snag enlarges the income shortfall that Hong Kong's elderly will suffer in the early part of the new millennium, an income gap that will be no less of a problem for the rest of the community. You don't need to be an actuary to work out that an average contribution of $12,000 a year is not going to pay for a comfortable old age, especially as life spans stretch with improving health care. The mainland, which faces a similar problem, on a vastly greater scale, already is moving to introduce a three-tier pension system, with individuals responsible for topping up a basic state payout. The World Bank recommends that pension arrangements rest on a 'three-legged stool' consisting of a mandatory scheme using publicly managed money, a mandatory scheme using privately managed money and voluntary savings. Investment professionals in Hong Kong want to see the same approach here, and the Investment Funds Association plans to push the Government to encourage sensible savings by providing tax concessions on individuals' own retirement savings, the third leg of the stool. No doubt bankers, barbers and taxi drivers also could make a strong case for having their services made tax deductible, but the fund managers are able to roll out some particularly strong arguments. Most powerful is the looming income shortfall. Murray Simpson, the IFA's deputy chairman and Templeton Franklin Investment Services (Asia)'s managing director, argues that MPF will not be enough, so people must top up pensions with private schemes. 'While the MPF is going part of the way to encouraging people to put money away for retirement, a lot of people think it doesn't go far enough,' he said last week. 'What we are going to focus on, regardless of MPF, is the recognition of the need for mutual funds: for savings, for retirement, for college.' Mr Simpson points to the success in the United States of tax advantages for individual retirement accounts (IRAs), which have proved hugely attractive to workers. The principle of tax deductibility for pension plans is recognised in Hong Kong - MPF contributions will be deductible. Mr Simpson says he simply wants it extended. The IFA expects to hold talks with the Government early next year to try to drum up support for a local arrangement similar to the voluntary IRAs, to supplement the mandatory scheme. These accounts would be more flexible, Mr Simpson said, allowing savers to access their funds before retirement. The advantage of this, said Desmond Chan Kwok-kit, the IFA's chairman, would be that the IRA-style savings could bridge the gap for individuals who work in companies that have an earlier retirement age than the official MPF-payout date. The fund managers are not motivated only by altruism, of course. The market-penetration rate for unit trusts is still less than 5 per cent in Hong Kong, so anything that encourages people to put money into IRAs, which would be invested in unit trusts, would be welcome. Mr Simpson admits Hong Kong's fund industry would receive a welcome shot in the arm from any tax-advantaged savings scheme, but he fails to see how the Government could object to that if it is committed to developing the financial-services sector. 'I would love to try to get them to realise how important it could be to the fund industry. If they are committed to spurring people to invest and to save, and also to having a strong fund industry here, I can't think of a better way of doing it,' he said. Probably the weakest link in the argument is the tax system itself. Hong Kong's low and essentially flat tax rates severely limit the benefit individuals can gather from tax-deductible schemes. But in this dollar-conscious town, a little might be enough. Ray Heath is pleased to receive general queries about investing in funds, but he cannot offer investment advice or recommendations.