Hong Kong’s MPF retirement scheme ranks second best in Asia behind Singapore’s amid investment losses: Mercer

The Mandatory Provident Fund is the best regulated pension scheme in Asia, but trails Singapore in providing retirees with adequate funds
Globally, Singapore’s scheme ranks seventh, Hong Kong 21st and Japan 30th, says report, which assessed 47 pension systems worldwide

Mandatory Provident Fund (MPF)

Enoch Yiu

Published: 4:30pm, 18 Oct 2023

Why you can trust SCMP

Hong Kong’s Mandatory Provident Fund (MPF) is the best regulated pension scheme in Asia, but trails behind Singapore’s when it comes to providing sufficient money for people’s retirement needs, according to a study released on Wednesday.

The city’s HK$1.11 trillion (US$141.62 billion) compulsory retirement scheme maintains its position as the second-best pension scheme in Asia, behind Singapore but ahead of Japan and Malaysia, in the annual Global Pension Index released by Mercer and the CFA Institute.

Scoring 64 points out of a possible 100, the MPF received a C+ grade, behind Singapore’s 76.3 (B+). Hong Kong’s score is similar to last year’s 64.7 and an improvement on the 56 that the MPF scored in 2018 when it was first included in the study.

The MPF is on course to report an unprecedented third year of losses after suffering an investment setback of HK$35.2 billion in the third quarter that wiped out all the gains made in the first half of the year, according to data from MPF Ratings.

People relax along the quay at lunch time next to Raffles Place in Singapore’s financial district on January 12, 2023. Photo: AFP

The Mandatory Provident Fund Schemes Authority (MPFA) is taking steps to improve the adequacy of the MPF for basic retirement protection on various fronts with a view to helping Hong Kong’s working population increase its retirement reserve, a spokesman said.

These include the planned launch of the eMPF Platform in the coming years, which will reduce MPF administration fees.

The MPFA is also reviewing mandatory contributions in the current review cycle in 2022 to 2026 period with a view to bringing up the contribution level to increase retirement savings, the spokesman added.

Globally, Singapore’s pension scheme ranked seventh, Hong Kong’s 21st and Japan’s 30th, according to the report, which assessed 47 pension systems worldwide. Only the Netherlands, Iceland, Denmark and Israel achieved A grades.

In Asia, Hong Kong ranked at the top for integrity thanks to its strong regulation and governance. But the MPF finished behind Singapore in terms of “adequacy”, a measure of whether the scheme provides sufficient funds for its members’ retirement.

“The integrity grading of Hong Kong is among the best worldwide,” said Kenrick Chung, director of Ben. Excellence Consultancy, an insurance broker in Hong Kong. “One of the reasons is the pension regulator’s efforts to lower administration fees in recent years.”

The MPF ranked fifth worldwide for integrity at 87.6, slightly behind the Netherlands at 87.7, Norway at 87.8, Belgium at 88.2 and Finland at 90.9. The global average is 71.6. Singapore scored a 77.

The Hong Kong scheme’s adequacy score dropped to 51.9 from 61.5 last year, falling well short of the global average of 66. It is, however, much improved from the 39 the MPF scored in 2018. Singapore’s scheme received a 79.8 this year.

37:19

China’s elderly are heading to retirement, here’s why that’s a problem

“The drop in points reflects the tougher environment the market is operating in such as higher interest rates, and drops in investment markets, which can impair the size of the retirement pot, actions to offset those losses notwithstanding,” said Adeline Tan, Mercer Asia’s wealth business leader and spokesperson.

The MPF, on average, had only HK$236,800 for each of its 4.7 million members as of June, according to data provided by research firm MPF Ratings. Separate surveys by HSBC and Bank of China Group Life Assurance showed Hongkongers face a significant shortfall in the savings needed for a comfortable retirement.

“Since the mandatory contribution rate of our MPF system is the same for all members, and there is a cap on mandatory contributions, it is not surprising that our adequacy is low,” Chung said.

The MPF scheme requires employers and employees to each contribute 5 per cent of the worker’s monthly salary to the retirement pot, subject to a combined cap of HK$3,000.

Contribution rates for the Singapore Central Provident Fund, including both employee and employer chip-ins, range from 12.5 per cent to 37 per cent of monthly wages, depending on age.

Why Hong Kong emigrants are worried about arrests over early MPF withdrawals

The Mercer study’s top three pension schemes globally – the Netherlands (overall score 85), Iceland (83.5) and Denmark (81.3) – also have high contribution levels, ranging between 15.5 per cent and 18 per cent.

“In order to improve [the MPF’s] adequacy, we can consider introducing contribution rates for different income levels, offering more tax incentives for both employer and employee for higher contributions, and developing an annuity product,” Chung said.

In terms of sustainability – an assessment of long-term stability given demographic trends – the MPF ranked high with a 61.1 this year, beating the global average of 53.7. Singapore’s scheme received the top mark in Asia at 71.6. Schemes where workers pay into personal accounts tend to do better on sustainability, because schemes where money is pooled can run into trouble when a population ages.

In Asia, the lowest scores went to South Korea for adequacy (39), mainland China for sustainability (39) and the Philippines for integrity (25.7).

“In Asia, we are seeing progress for most markets, but low birth rates and longevity issues continue to plague many societies,” Mercer’s Tan said. “Much more can be done to create better outcomes for the populations, and governments must prioritise pension system reviews and enhancements sooner rather than later.”