Hong Kong’s regulator scraps plan for first-time buyers to use pension for their homes
Mandatory Provident Fund Schemes Authority will also submit review before government suggesting upper limit on total contributions be raised to HK$4,800 a month
The Mandatory Provident Fund Schemes Authority, Hong Kong’s pensions regulator, has shelved a study into allowing first-time homebuyers to withdraw money from the compulsory retirement scheme. It fears this would escalate the city’s already overheated property market, according to a senior executive.
The authority was considering whether it should allow the 2.8 million employees and self-employed people in Hong Kong covered by the city’s Mandatory Provident Fund to use their contributions for purposes other than their retirement protection. This included the option of allowing first-time homebuyers to withdraw money for buying properties.
“However, we have now decided to shelve this study, as the property market is still overheated,” said Cheng Yan-chee, chief corporate affairs officer and executive director at the MPFA. Hong Kong home prices rose for 24 consecutive months as of the end of March.
“If we were to allow first-time buyers to use their MPF contributions to buy properties, it would be against government policy. We have thus decided to not continue with the study. And there is no timeline on when we would consider such a study again,” said Cheng.
The authority will, meanwhile, submit a regular review of the MPF contribution levels to the government.
The review will suggest that the upper limit of monthly contributions by employers and employees together be increased to HK$4,800 (US$611.5) a month from the current HK$3,000 a month.
“Such an increase, however, will not happen immediately. After the MPFA submits its review to the government, the government will decide if it will adopt it. It will then also need to seek the approval of lawmakers for any change,” said Cheng.
The review is in accordance with MPF laws, which require the MPFA to review the contribution levels every four years. The next one is due in July.
Under this law, the MPFA must make sure the contribution levels link to 90 per cent of all salaries. Under such a calculation, the upper cap of a salary subject to the MPF would increase to HK$4,800 a month from the current cap of HK$3,000. The maximum contributions to be paid by employers and employees will increase accordingly.
The lower limit of the MPF will also be changed under the review, which will suggest that an employee who receives a salary of under HK$8,000 a month not pay their contribution, compared with HK$7,100 now.
Cheng said the default investment strategy (DIS) funds which are low fee funds investing heavily in bonds had lost out to the investment funds with more stock investments due to the stock market rally last year. However, he said there were many employees, particularly younger ones, who chose the DIS fund, which has a 0.75 per cent fee cap, while adopting a simple investment strategy.
In the first quarter this year, 107,300 employees set up MPF accounts and chose to invest in the low fee fund, representing 25 per cent of all such investors. Most of them were 40 years old or younger. Including the existing accounts, 1.48 million MPF accounts have invested in DIS, which manages HK$25 billion in assets, or 3 per cent of total assets.
“This shows there are still a lot of people who would like to invest in DIS. We need to take a long-term view of the DIS reform, which was only introduced a year ago. We believe the DIS reform will force other MPF investment funds to cut their fees to about 1 per cent in the long term,” said Cheng.