Hong Kong's state-funded pension scheme

Annuity scheme is a welcome fallback for ageing population

The monthly returns may seem modest, but this is nonetheless a safe option for those retirees who have little investment experience

PUBLISHED : Saturday, 15 April, 2017, 12:52am
UPDATED : Saturday, 15 April, 2017, 12:52am

Retirement protection in Hong Kong is notoriously insufficient. In the absence of a pension scheme for all, many elderly citizens are either living on the dole or their own savings. Those covered by a salary-based provident fund scheme launched 20 years ago are not much better off. The meagre contributions – 5 per cent each from bosses and workers – are hardly enough for comfortable retirement.

The government is to be commended for introducing another fallback for retirees seeking safe investment returns on their money. Under an annuity scheme to be rolled out next year, people aged 65 and above could choose to invest between HK$50,000 to HK$1 million, in exchange for a guaranteed monthly income for the rest of their lives. Based on an estimated 4 per cent rate of return, the amounts for female and male investors are HK$5,300 and HK$5,800 respectively. The return may seem modest. It is nonetheless a safe option to those who have little investment experience. Many retirees have little idea how to make the best of their money. The high-inflation and low-interest environment inevitably eats into their savings and undermines their financial security. It will be good if their lump-sum cash can turn into a lifelong stream of stable income.

‘I can only dream’: annuity scheme either not enough or out of reach for many of Hong Kong’s elderly

Initial feedback from elderly citizens has been mixed, which is unsurprising given their different circumstances. But the reality is that those who have the means have strong demand for a safe and reliable investment return. A similar property-for-cash initiative called a reverse mortgage scheme has gradually gained support. It enables elderly homeowners to use their property as collateral for a steady monthly income until death. There have been some 1,600 applications since 2011. Another investment tool for senior citizens – the silver bond – was even more popular, attracting 75,000 applications with a total subscription value of HK$9 billion last year.

The annuity scheme is expected to benefit only 10,000 to 200,000 people, depending on the number of applicants and the amount subscribed. Our fast ageing population is likely to further fuel the demand. The government should consider expanding the scheme in light of the response.