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Mandatory Provident Fund (MPF)
OpinionLetters

LettersImprove MPF first before moving retirees to annuity plan

  • Readers discuss the Mandatory Provident Fund, plans to make retirees move their savings into an annuity and whether that will make retirement more secure

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Demonstrators appeal to the Legislative Council to scrap the Mandatory Provident Fund offset mechanism outside the central government offices in Tamar on June 24, 2017. Photo: Jonathan Wong
Letters
Secretary for Labour and Welfare Dr Law Chi-kwong recently floated the idea of forcing retirees to transfer their Mandatory Provident Fund (MPF) balances into an annuity plan.

The Business and Professionals Federation of Hong Kong can see the merits of implementing such a plan in the long run but believes that at present, it would face significant opposition unless other more pressing improvements receive priority.

While the theoretical basis of the MPF is sound, there is widespread scepticism about the scheme for understandable reasons. The accumulated funds in MPF accounts, especially those of the lower-income group, are insufficient to provide a reasonable retirement income. This is a result of factors such as low wages, low contribution rates and the current practice of permitting severance payments to be offset against beneficiaries’ MPF balances.
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In our report “Hong Kong at a Crossroads – MPF, a Job Half Done”, the federation recommends the government should be prepared to spend public money to enhance the MPF so it meets the basic aim of providing adequate retirement income for Hong Kong’s workers. It should contribute from the public purse an additional 5 per cent of relevant income to MPF accounts – or 10 per cent for those earning less than HK$7,100 (US$910) per month – as a top-up amount, instead of the burden falling solely on employers and employees, who are asked to pay so little that the total will never be sufficient.

The failure to eliminate the offsetting arrangements is a scandal which has led to injustice for our least privileged citizens. While it is a relief that early action on this has been promised, we will not feel reassured until legislation is actually on the table. That legislation should include arrangements to mitigate the impact of offsets during the transition period.

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Only when much-needed improvements to the MPF system are in place will people think highly enough of it to be willing to contemplate conversion of MPF balances into annuity payments, a concept which we support.

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