Letters | Improve 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

Mandatory Provident Fund (MPF)

Letters

Published: 6:30am, 11 Oct 2021

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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.

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.

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.

As Law pointed out, if retirement protection is insufficient, the pressure will eventually be felt in the welfare system, including the Comprehensive Social Security Assistance scheme.

Hongkongers take pride in their contributions to society through their hard work and would rather not turn to welfare payments, if it can be avoided. It is therefore incumbent on the government to reassess its position and to prioritise steps that will allow everyone to accumulate sufficient funds for a dignified retirement, free from the curse of undue financial anxiety.

Rachel Cartland, Executive Council member, Business and Professionals Federation of Hong Kong

Shift to public annuity plan will not help retirees

The Mandatory Provident Fund (MPF) has been a magnet for controversy because of its ineffectiveness in helping secure Hongkongers’ retirement.

Last week, Secretary for Labour and Welfare Dr Law Chi-kwong suggested the government should consider putting individual MPF savings into an annuity plan upon retirement, even making it mandatory. However, such a proposal risks defeating its purpose of promoting a stable retirement.

According to Law, a retiree could receive HK$20,000 a month for investing HK$4 million of MPF savings in the annuity scheme. Owning such an astronomical amount of MPF savings might be more realistic among civil servants as the government provides a voluntary MPF contribution of up to 25 per cent of their salary.

Nevertheless, based on the latest study of MPF Ratings Limited, MPF retirees only accumulate around HK$270,000 on average. Using an online calculator for the public annuity scheme, I estimate Hong Kong retirees might only receive HK$1,450 or less in reality.

Yet, the Institute of Financial Planners of Hong Kong recently suggested average monthly expenses among retirees exceed HK$11,000 because of the high living costs in the city. It is doubtful whether such precarious returns from the public annuity scheme can really promote stable retirement and therefore alleviate the burden on retirees and the government.

This plan also stifles people’s investment rights. A BCT Group survey in July found that nearly 80 per cent of respondents expected financial freedom and flexibility during retirement. Meanwhile, the return rate of the public annuity scheme is only around 5 per cent and is lower than average investment tools. Its return also greatly depends on one’s life expectancy.

On the other hand, retirees need to have large amounts of cash on hand for emergency use, such as to pay for surgery or any other health care expense. The compulsory transition of MPF savings to the annuity scheme could hence hamper their financial security.

Though the upsides of a public annuity should not be denied, the choice should remain in the hands of the citizens.

Law said this idea is nothing new. However, the legitimacy of a policy should not lie on when it is planned but how it is planned. Such argument should not be an excuse for overlooking its flaws.

The government should think carefully before pressing ahead with any decision that would have an impact on many generations to come.

Alison Ng, Mong Kok

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