Mandatory Provident Fund (MPF)

Life after work: Hong Kong employees’ retirement savings fall short by about HK$2 million

Most workers expect to save only about HK$1.2m by the time they retire

PUBLISHED : Wednesday, 20 December, 2017, 12:33pm
UPDATED : Wednesday, 20 December, 2017, 11:15pm

Most Hong Kong employees on average are expected to fall short by about HK$2 million (US$260,000) for life after retirement, according to a survey by the Hong Kong Investment Funds Association (HKIFA).

Only 23 per cent of Hong Kong employees believe that they would have enough money after retiring, showed the survey, which was conducted during the third quarter of 2017.

Based on the current living standards, it is expected that a Hong Kong employee would need to save HK$3.1 million when they reach 65 so as to enable them to maintain the same level of living after leaving work.

However, the employees surveyed on average expected to save about HK$1.2 million by the time they retire, meaning there would be a shortfall of nearly HK$2 million.

The pension shortfall is a cause for concern as Hongkongers are living longer. 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.

Hong Kong has no official retirement age, but many private companies ask employees to leave at 60.

But on average, men who retired from the workforce last year are expected to finance another 21.3 years of life, while the average woman faces more than a quarter of a century, or 27.3 years, of life. By 2066, that will rise to 27.1 years for men and 33.1 years for women without salary.

To address the potential shortfall, 64 per cent of those surveyed by HKIFA plan to adjust their lifestyle by cutting down on daily expenses or travelling less, or postponing their retirement.

About 53 per cent plan to lower their investment risks, a move that may further reduce their investment income.

Despite knowing the shortfall, the HKIFA survey also found most employees have not done enough to prepare for their retirement.

More than one third of the respondents do not have an idea of the contribution of Mandatory Provident Fund – the compulsory retirement scheme in Hong Kong covering 2.8 million employees and self-employed people – to their overall retirement savings pool.

On average, employees expect that MPF will only contribute 38 per cent to their retirement funds.

Despite being aware that they cannot rely solely on MPF for retirement protection, not many have taken action to address the funding gap, with only 30 per cent of respondents earmarking a fixed portion of their income for retirement purposes outside MPF.

Typically, to maintain the standard of living post retirement, one has to reach an income replacement ratio of about 70 per cent of the final year of pre-retirement income. Based on this, if one is to support a retirement life of 20 years, the employee has to save about 23.6 per cent of their earnings a year over their working life.

As such, Hong Kong employees should put aside another 13.6 per cent of their income for other retirement purposes in addition to the 10 per cent MPF contribution to meet their needs.