Mandatory Provident Fund (MPF)

Lawmakers debate tax rule change that could allow retirees to siphon from annuity funds at 50

PUBLISHED : Tuesday, 15 May, 2018, 11:34am
UPDATED : Tuesday, 15 May, 2018, 10:26pm

Should 50 be the age for employees to access their retirement benefit from their annuity plan? This question has been the focus of debate among the local insurance and pension industry since government last week unveiled a proposal to give tax incentives to allow employees to start receiving their retirement benefit from an annuity plan as early as age 50.

“We believe age 50 is just too young for employees to retire. Nowadays many people live into their 90s or more than 100 years old and it is not realistic to retire at age 50. If the government would like to give tax incentives to encourage Hong Kong employees to save up more for their retirement scheme, it should require them to get the money at 60 or thereafter,” said Heman Wong Kwong-ming, chief executive of Pension Schemes Association.

“The government should encourage those in their 50s to continue to work hard to save up more for their retirement instead of encouraging them to retire at such an age,” Wong said. 

The government has proposed to give a tax deduction of up to HK$36,000 (US$4,586.12) a year for those who voluntarily top-up their Mandatory Provident Fund ( MPF) account or paid into deferred annuities. 

But there is an age different between the two types of retirement schemes. Those who pay the voluntary top-up to enjoy the tax benefit will be eligible to receive their contribution from age 65. But for those who buy a deferred annuities product can get draw benefits from age 50.

Wong said the rules as proposed were not fair as it would bias retirement savers towards the product with the earlier drawdown.

“This is just not fair for the MPF as those who contribute to the MPF for this tax benefit would only be able to get the money 15 years after those who pay for the deferred annuities,” Wong said.

Wong said the government should align the two retirement plans. 

“The government should either also allow MPF voluntarily contribution to be taken at 50, the same as the annuity, or it should let the annuity buyers draw money out only at 60,” he said.

“Ideally, it would be better to allow employees to get the money later than earlier, otherwise it does not meet with the purpose to use tax incentives to encourage people to prepare for retirement. The current proposal would only encourage those in their 40s to buy the annuity to enjoy the tax benefits and then get the money out from age 50,” he said.

Hong Kong Federation of Insurers chief executive Peter Tam however supported the government proposal.

“The current proposal gives more flexibility for employees who would like to retire early. There are some people who seek to retire at age 40 or 50. The annuity products should be designed to meet with this demand,” Tam said.

Tam said there was no unfair bias. The MPF plan would allow retirees to take the money as a lump sum at 60, while the annuities scheme would allow employees to take monthly payouts starting at 50, but over a period lasting several years. 

Hong Kong has no official retirement age but many companies use 60 as a benchmark. The MPF, the compulsory retirement scheme covering 2.8 million employees and self-employed individuals, allows members to draw upon their contribution and investment returns at 65. 

Kenrick Chung, the director of product management at Convoy Financial Services, also supported the government proposal to allow employees to draw from their annuity plan at 50.

“For the younger employees in their 20s or 30s, they would think it would be too long for them to take the annuity at age 65. It would be more ideal for them to start to take the annuity payment from age 50. They could buy another retirement products afterwards for their retirement,” Chung said.

Chung said the different treatment for MPF and the annuity would also offer more product options for employees.

Several lawmakers on Tuesday supported the tax rule change but said that the cap at HK$36,000 a year was too low.

“The government should consider setting the cap at HK$60,000 a year or more,” said Chan Kin-por, a lawmaker for the insurance industry.

Wong proposed the tax deductible contribution be capped at HK$100,000 a year.

Eddie Cheung, deputy secretary for financial services and the treasury, said the government would consider if it could raise the tax deduction. He said the proposals would require a law change for both tax law and the MPF ordinance which would be submitted to Legco by the end of this year.

“If approved, employees from April 2019 would be able to start to enjoy the tax benefit from the retirement contribution,” Cheung told lawmakers on Tuesday.