China pension plans hang on reform success

There are lessons for Hong Kong in China's approach to reforming its retirement benefits system, according to Stuart Leckie, senior adviser, Greater China, for Hewitt Associates and chairman of the Hong Kong Retirement Schemes Association.

Mr Leckie's company has just completed a major consulting project for the Asian Development Bank and the Chinese government on the social security reform pilot programme for Liaoning province, in China's northeast.

Under China's three-pillar approach to its retirees, the Liaoning system offers an employer-funded basic pension of up to 30 per cent of average local earnings, an individual account pension based on members' contributions and investment return, and the opportunity for supplementary plans known as enterprise annuity plans.

'The individual account is like Hong Kong's MPF to the extent that the payout will depend on one's own salary, but it is also unlike MPF. Firstly, because you have to take the benefit as a pension and, secondly, there is no choice of investment.'

Mr Leckie believes the lump sum nature of the MPF is a serious weakness. Regular pension payouts are preferable because retirees are unable to spend all their benefits rapidly, as they can with lump sums.

He says Hong Kong has never held a wide debate on the proper shape of its retirement safety net, but rather seized on the MPF as a way of taking responsibility from the government and putting it in the private sector.