Ageing society

Hong Kong to launch retirement annuity scheme in July as it eyes an ageing population

The scheme will offer a monthly income for life guaranteed by the government, but analysts note that it will only cover a limited number of people

PUBLISHED : Wednesday, 07 February, 2018, 9:28pm
UPDATED : Wednesday, 07 February, 2018, 11:28pm

Hong Kong will launch in July its first public annuity scheme, which will allow any permanent resident aged 65 or above to invest a lump sum in exchange for a guaranteed monthly income for life, the government’s latest effort to provide for an ever-ageing population.

The HK$10 billion (US$1.3 billion) scheme will give men who invest the maximum HK$1 million premium at age 65 to receive HK$5,800 per month, while women would get HK$5,300 as they usually live longer, according to Edmond Lau Ying-pan, chief executive of HKMC Annuity, which will operate the scheme. The government first announced its intention to launch the scheme last April.

The city has 1.3 million people aged 65 or over, about 18 per cent of its total population, but the number is expected to increase to 31 per cent of the population in 2036. The average life expectancy for Hong Kong men will increase from 81.3 years in 2016 to 87.1 by 2066, and for women it will rise from 87.3 years to 93.1, according to a Hong Kong government estimate.

HKMC Annuity is a unit of the government-owned Hong Kong Mortgage Corporation. It will collect the money from buyers of the annuity, up to the maximum HK$10 billion allowed, and will invest the money to provide the guaranteed monthly payments. It will shoulder any investment losses.

Buyers can invest between HK$50,000 and HK$1 million each through 20 Hong Kong banks. If total subscriptions are over HK$10 billion, HKMC Annuity may use a lucky draw mechanism to determine who can buy an annuity and how much they can invest. Lau said.

“We have carefully calculated that our model can afford the payout,” said Lau, though he worried that retirees might not understand annuities, which are new to Hong Kong.

“We want retirees to understand the annuity scheme is different from a time deposit,” he said, noting that the annuity would provide a monthly income for life, but, unlike with time deposits, buyers could not get back their initial investment at the end.

Hong Kong’s ageing time bomb a cause for concern

However, some analysts said the scheme had its limitations.

“The public annuity has the beauty of a government guarantee, but the HK$10 billion cap means only a few people can get it,” said Elvin Yu, a principal at pension consultancy Goji Consulting.

He said that if every applicant opted to invest the maximum HK$1 million, only 10,000 people would be covered by the scheme. It would cover 200,000 people if they all put in the minimum HK$50,000, but the monthly payouts would then be only a few hundred dollars.

“It would be better if the government could expand the scale, or if the public consider other privately run annuity plans,” Yu said.

Hong Kong already has a compulsory retirement pension scheme, the Mandatory Provident Fund, through which contributors receive a lump sum at the age of 65. Lau said people could consider investing in the annuity scheme with their MPF money.