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Toh Han Shih

Financial crisis is shrinking already inadequate pensions
Cheung Kie is happy, but he might be an island of contentment in the sea of a distressed elderly population, whose retirement funds have been hit by the raging financial storm.
'I'm lucky that I'm healthy and can afford to enjoy life. But many old folks out there, who did not manage to save as much as I did, are struggling to get by. A lot of them, who live nearby in Sai Wan Ho  and Shau Kei Wan,  survive on fruit money.'
Hong Kong has 870,000 people over 65, of  whom 475,000 receive fruit money - local parlance for  the old-age allowance.
A person aged between 65 and 69 not receiving a social-security payment was  entitled to HK$625 per month, provided he or she was earning less than HK$5,910 per month or had less than HK$169,000 in assets. The income and asset limits for a married couple are HK$9,740 and HK$254,000 respectively. In November, the allowance was raised to HK$1,000 per month.
But that's hardly enough, given that interest rates have been falling steadily as a result of  serial rate cuts to revive the economy. The near-zero-interest-rate regime has attacked the very heart of the income source of  old folks, making their survival that much more difficult.
The predicament of those over 50  was captured in a survey by insurer  AIA and the Hong Kong Council of Social Service  (HKCSS) last year.  Eighty-seven per cent of respondents were without  a pension plan and 30 per cent  lived on fruit money, while 58 per cent were supported by their children. About 60 per cent said their monthly income was lower than HK$4,000. More than  53 per cent had insufficient  funds for retirement.
In the survey, the level of happiness and satisfaction was  affected by many factors, including social, financial and health,  AIA Pension and Trustee senior vice-president Peter Crewe  said.
'We can see from the survey results that not having a retirement plan has a significant negative impact on the happiness of the seniors. But this impact is balanced by other positive factors, for example living with children,' Mr Crewe said.
'People are living longer and thus have a longer retirement period. To fund a longer retirement period, you need to set aside more money. MPF is not going to provide enough money for the lifestyle they want for long-term retirement,' he said, referring to the Mandatory Provident Fund set up by the government in 2000.
Hong Kong has one of the lowest fertility rates in the world and a rapidly greying population as a result of improved life expectancy, he said.
Currently, 12.6 per cent of its  residents are aged 65 or older, but HKCSS estimates that by 2033, a quarter of Hongkongers will be over 65.
On  filial piety, Mr Crew noted: 'Hong Kong's elderly have traditionally received a lot of support from their families. I won't say there is a breakdown in the Hong Kong family system, but because of [the] increasing cost of living, the families are finding it harder to meet their needs.
'The family unit in Hong Kong is tighter than in western countries, but we're seeing it fragmenting. Families sometimes no longer live in the same geographic location. The traditional concept of the Chinese family is seeing fundamental changes.
'That's why getting people to depend not too heavily on family and think about their own financial future  is important.'
More than 90 per cent of those employed contribute 5 per cent of  their salary to the MPF, matched by the employer contribution of 5 per cent, subject to a cap. The maximum cap on monthly salary is HK$20,000 and the minimum cap is HK$5,000.
But many financial experts hold that this may not be enough to guarantee a comfortable retirement.
'If you contribute 5 per cent of your income and want to live off 50 per cent of your final salary at retirement, that's not going to happen. You've got a greater chance of doing that in early age, but if you start MPF 15 years before retirement, the contribution has to be significantly higher. If you want to plan properly for retirement, you have to start early,'  Mr Crewe said.
Financial experts say that if people have not started saving for retirement by the age of 50, they need to set aside more - 40 to 50 per cent of their income each month - than if they had started younger.
'There is a fundamental weakness in MPF. Five per cent of salary isn't enough for retirement. In recent years, many have wanted to make voluntary additions to MPF. For example, 15 per cent of our AIA MPF members are making voluntary contributions,' said Mr Crewe.
'We prefer to see a strategy related to an escalation of contribution to MPF. It has to go into law. You can't put the burden on employers, who are contributing 5 per cent already. The burden on retirement planning has to be on the individual.'
But it is difficult to get individuals to think harder  about life after retirement. An in-house HSBC study on attitudes towards MPF revealed how little Hongkongers care when it comes to planning for retirement. It found that nearly a third of respondents never  review how their contributions are being invested, and about half never speak to a financial adviser about retirement planning.
They typically do not consider  fundamental aspects of financial planning such as lifestyle expectations in their later years, the sufficiency of MPF payouts and the reliability of other sources of income. Of course, having possibly made an average 30 per cent loss last year, the  pension funds hardly inspire confidence, let alone commitment.  Low-income workers have demanded  HK$6,000 in cash instead of putting it into their MPF accounts - flying in the face of government plans to inject HK$8.5 billion into the pensions of 1.3 million low-income earners to relieve pressure on long-term welfare spending.
Financial planners still encourage people to have faith in the MPF and urge them to take an active interest in it.  Employees will be allowed to choose the scheme provider to manage their  contributions. Under this plan, it would be possible to change provider once a year.
This move is expected to encourage individuals to take more responsibility for and ownership of their contributions, and  put a little more thought into retirement planning - unless they want to end up living off fruit money in their twilight years.
Exposed elderly
The percentage of respondents over 50 to a survey by AIA and the Hong Kong Council of Social Service who said they did not have a retirement pension plan: 87
The percentage of people who said they lived on fruit money: 30
The percentage of people who said their monthly income was lower than HK$4,000: 60
The HKCSS estimates that by 2033, the percentage of Hongkongers over 65 will be: 25
The percentage of respondents to an inhouse survey by HSBC on attitudes towards the MPF who said they never reviewed how their contributions were being invested: 33
The percentage of respondents who said they had never spoken to a financial adviser about retirement planning: 50



High price to pay for not planning for the future