Oct 2015 EDITORIAL: NECESSARY INPUT FOR THE MANDATORY PROVIDENT FUND

Beginning in December, proposals especially regarding the improvement of the Mandatory Provident Fund scheme will be a part of the overarching consultation, with the government potentially seeking the Hong Kong public for their input.

After a report commissioned by the government was filed last year by University of Hong Kong academic Nelson Chow Wing-sun, retirement protection and post-retirement income have been topics under consideration. According to the HKSAR Government, as of December 2014, the Net Asset Value of all MPF schemes combined was just under HKD$560 billion.

The most highly touted aspect of the MPF scheme under consideration will pertain to employers and their ability to utilize the MPF in offsetting severance packages. When Chief Executive CY Leung ran for election in 2012, one of his campaign promises was to seek a lowering of withdrawals from employers for payments to long-serving employees.

This, however, might be a pipe dream, as many are saying that while seeking public opinion is a first step to revamping the MPF, not much will be done to actually get rid of the clause.  According to Secretary of Labor Matthew Cheung, the government has taken no official stance on this particular issue, so it remains to be seen what they will end up saying.

In its original conception, the MPF was meant to provide returns for pensioners. However, in reality, it has given back a rate of return hovering around two percent, which is not comparable to other schemes in other economies of the same ilk.

There are other options under consideration, such as inflation-linked retail bonds, which would have longer maturity cycles than those previous issued by the government. Other inclusions that pertain to annuities could also be an additional consideration, if voiced by the public.

Since its initial launch in December 2000, the MPF scheme has undergone continuous review, but has seen minor changes in terms of its efficiency. The latest, the MPF Schemes Bill, was introduced into LegCo in July of last year, and mostly gives participants more flexibility in withdrawing accrued benefits.

There are also other administrative regulations and fee reductions that could be considered, as the procedures of the system could be streamlined and further automated for easier contribution.

With regional competitor Singapore being one of the only countries that offers annuity products from the government, Hong Kong should seriously consider its retirement protection for its elderly citizens, especially as the population ages and has less housing in order to accommodate it.

By 2021, according to the Hong Kong Government, the population of 65 and above will increase to nearly 20 percent of the total population, and even further in the years beyond. Thus, the MPF considerations are incredibly important to the well-being of society when the population is no longer reflective of the world we see today.

The MPF is meant to provide residents of Hong Kong peace of mind and more security for its residents in their retirement age. Therefore, the public’s input should be of utmost importance for real consideration for the government as they decide which changes are the most critical for the undertaking.

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