System that ensures retired receive a monthly income for life will be among the ideas put forward in public consultation, source says
GARY CHEUNGgary.cheung@scmp.com
PUBLISHED : Monday, 05 October, 2015, 2:34am
UPDATED : Monday, 05 October, 2015, 2:45am
Annuities will be listed in the consultation process as one of the options to improve the MPF system, which covers 2.5 million employees. Photo: AFP
An annuity to guarantee the elderly a monthly income for life will be among the options put to the Hong Kong public in a consultation to improve the Mandatory Provident Fund scheme.
Other options include inflation-linked retail bonds, iBonds, with a maturity longer than the three years for iBonds issued by the government since 2011.
A source familiar with the matter told the Post that proposals for improving MPF schemes would feature prominently in the consultation starting in December. The report will also seek public views on scrapping a controversial mechanism that allows bosses to use their portion of MPF contributions to offset severance payments for employees.
In his manifesto for the 2012 chief executive election, Leung Chun-ying said he would seek to lower the proportion of withdrawals by employers to offset long-service or severance payments.
With less than two years left of his term, the chief executive is facing growing pressure to deliver on his promise. Unionists have long been fighting for the abolition of the mechanism, but businesses argue that it would increase their operating costs.
"But the consultation report, which will list the concerns of various stakeholders on scrapping the mechanism, will not put forward a concrete proposal on how to scrap it," a person close to the government said.
The person believed it was unlikely that the chief executive would give a clear direction in his fourth policy address in January.
The MPF system is one of the three pillars envisioned in the World Bank's 1994 report on retirement protection. The others are a publicly managed social safety net and voluntary personal savings.
Annuities will be listed in the consultation process as one of the options to improve the MPF system, which covers 2.5 million employees. Critics say MPF fees are too high and the system cannot provide adequate retirement income.
The source familiar with the matter said the public's views would be sought on the government's role in facilitating the development of an annuity market.
"The private annuity market in Hong Kong is underdeveloped because there is no mandatory requirement to transfer some of their MPF savings to annuity products before their retirement," the source said.
The government may ask the public if there is a need to make transferring MPF savings to annuity schemes before retirement mandatory, according to the source.
University of Hong Kong academic Nelson Chow Wing-sun recommended the establishment of a universal pension scheme under which every Hongkonger over 65 would get HK$3,000 a month without a means test. Photo: Jonathan Wong
Singapore is one of the few countries where annuity products are provided by the government. The CPF Lifelong Income For the Elderly provides members of the Central Provident Fund, Singapore's national saving programme, with a monthly payout for life from age 65. From 2013, members of the Central Provident Fund are automatically included in CPF Life.
According to the Mandatory Provident Fund Schemes Authority, if a person joins the MPF system aged 25, has a monthly salary of HK$15,000 and enjoys a 4 per cent a year return before retiring at 65, he or she will accumulate about HK$1.77 million.
That would give a monthly post-retirement income of about HK$9,200 for men and HK$6,700 for women, who have a longer lifespan.
The forthcoming consultation comes 14 months after the release in August last year of a government-commissioned report on retirement protection.
University of Hong Kong academic Nelson Chow Wing-sun, who conducted the study, recommended the establishment of a universal pension scheme under which every Hongkonger over 65 would get HK$3,000 a month without a means test.
The pension would be funded partly by contributions ranging from 1 to 2.5 per cent of employees' salaries, paid by both employers and workers.
After the release of Chow's report, Chief Secretary Carrie Lam Cheng Yuet-ngor expressed concern about the impact on public finances. She said there would be sustainability problems with his proposal and three other options by 2041.
A draft report will be submitted to the government-appointed Commission on Poverty, chaired by Lam, for discussion at its meeting this month.
http://m.scmp.com/news/hong-kong/economy/article/1864127/annuities-option-improve-hong-kongs-mpf-retirement-scheme
