Hong Kong's state-funded pension scheme

Poor response to Hong Kong government’s annuity scheme as senior citizens subscribe to less than 50pc of US$1.27b target

Only 9,410 senior citizens plan to take part in the Hong Kong government’s annuity plan and intend to invest HK$4.94 billion

PUBLISHED : Friday, 10 August, 2018, 6:17pm
UPDATED : Friday, 10 August, 2018, 10:02pm

The response to the Hong Kong government’s HK$10 billion (US$1.27 billion) public annuity scheme has been pretty disappointing, with just 9,410 senior citizens intending to invest HK$4.94 billion, less than half the quota, according to the scheme’s operator HKMC Annuity.

“The HK$10 billion was the cap for the scheme and not the sales target,” Edmond Lau Ying-pan, chief executive of HKMC Annuity, said at a press conference to announce the subscriptions details of the programme. “The result was within our expectations. The annuity scheme is new and it takes time to educate the public about the product.”

The average subscription amount for the offer, which ran from mid-July until its close on Wednesday, is HK$525,000. Thirty per cent of the applicants want to invest HK$1 million and 54 per cent HK$500,000 or more. Only 5.5 per cent or 520 senior citizens want to invest HK$50,000 to HK$99,999.

The minimum investment threshold is HK$50,000.

Lau said subscribers have until October to complete their purchases.

While some retirees told the Post they did not buy the scheme as it carried a low return of 4 per cent, Lau said they should understand the scheme is risk free, while other like stock investments carry higher risks.

The Hang Seng Index rose 36 per cent last year, making it one of the best performing stock indices worldwide, but it has had a bumpy ride this year because of the trade war between the US and China.

The “relatively younger” retirees aged 65 to 69 were among the largest group of buyers accounting for 61.9 per cent of the total, the 70 to 74 age group represented 23 per cent and those aged between 75 to 79 made up 9.2 per cent. Only 4.1 per cent of the subscribers were above 80.

Still there were 174 senior citizens aged 85 or over who had subscribed to the scheme representing 1.8 per cent of the overall total. The oldest subscriber was 90 years old.

The scheme is the latest effort by the government as it prepares for an ageing population. Hong Kong now has 1.3 million people aged 65 or above, about 18 per cent of its population, but that age bracket is expected to rise to 31 per cent of the population by 2036.

A HK$1 million lump sum investment in the scheme will earn monthly payments of HK$5,300 for women and HK$5,800 for men. The minimum investment of HK$50,000 will yield monthly payments of HK$265 for women and HK$290 for men.

The lower figure for women takes into account their longer life expectancy. This may explain why more men bought the annuity plan as they represent 56 per cent of investors.

Despite the poor turnout, Lau said the government will continue to offer the scheme as an investment choice for senior citizens with a quota every year. He said the government may do away with the subscription period and allow senior citizens to enter the scheme any time they like.

“The scheme offers a choice for retirees just like the reverse mortgage programme launched eight years ago. This too received poorly reception in the first few years but is now very popular. We believe education would help promote the scheme in future,” Lau said.

The reverse mortgage programme is operated by HKMC Insurance for people who are aged 55 or above to apply for reverse mortgage loans, allowing the borrower to stay in the property for the rest of his or her life and receive monthly payouts over a fixed period of time.