Allow withdrawals from MPF to pay for home purchases
It’s an old idea that’s being resurrected but well worth considering. And let’s take it a step further by allowing people to use their pension savings to pay off long-term mortgages
An old idea is being resurrected to allow workers to withdraw their Mandatory Provident Fund savings to buy homes. It doesn’t seem like a coincidence that it is being talked up at a time when Chief Executive Carrie Lam Cheng Yuet-ngor wants to boost the home ownership rate from the current 50 per cent to 70 per cent in 10 years.
Nevertheless, it’s a good idea for a number of reasons, one of which is the poor returns workers receive from their investments in the MPF.
Between 1980 and 2015, the private residential market appreciated at an annual rate of 8 per cent. With the Hang Seng Index, it’s even higher – 9.7 per cent. Of course, property has outperformed stocks by a wide margin between 2000 and now. And you are far more likely to hold on to your real estate than stocks.
By comparison, the 17-year-old MPF has returned, on average, just 4.3 per cent a year after fees and charges – thanks in large part to the recent global equity bull run. A year ago, the annualised return would have been just 2.8 per cent.
If you are allowed to make direct investments with your MPF, such as buying your own home, go for it. At least you can skip some of the fees and charges imposed by your fund managers that are compounded every year for the duration of your working life.
MPF officials have offered few details, but the general idea is sound. How much, for example, should you be allowed to take out of your MPF to buy a home? Until the so-called offset mechanism is phased out, bosses will surely object to letting you take their portion of contributions to your accounts; how else can they “offset” paying your long-service and severance entitlements when you leave or are let go?
More problematic is that the plan seems only aimed at first-time homebuyers making a down payment. This may help boost Lam’s beloved home ownership ideal, enhanced by providing more subsidised housing. But while no one knows when the property market will peak, surely someone buying now has a much narrower margin of safety than a few years ago.
Why not allow workers to use MPF money to pay off a long-term mortgage, when their pensions will have reached a fair sum? With first-time homebuyers, you are effectively encouraging them to take risks. But paying off a mortgage is usually risk-free, and will significantly boost disposable income and living standards.