'A pro-government think-tank yesterday proposed that all workers contribute between 1 per cent and 5 per cent of their salary to a mandatory medical savings account scheme.'
SCMP, June 7
The Bauhinia Foundation is supposed to be the Chief Executive's brains trust, a group of clever, forward-thinking people. Unfortunately, we shall have to reconsider the brainpower rating. This idea of a medical savings account is just plain daft.
What they seem to have done is swallow the concept of defined contribution whole and unchewed and then try to make use of it where it just does not fit.
Where it fits is in pension plans, which can be set up in two ways: defined benefit, in which the beneficiaries are told exactly what their pensions will be; and defined contribution, in which the beneficiaries are told exactly what they must put in and their actual pensions are then determined by how well that money is invested.
The world has pretty much swung to defined contribution these days, except for mollycoddled civil servants, and the biggest reason is the sad experience of defined benefit schemes. All too often the people responsible did not worry enough about how to raise the money and when payout time came up, enough money wasn't there.
