Stronger political will needed toward MPF
Securing a pension sufficient to maintain a decent life after retirement is at least as big a concern as securing a decent living space for many Hong Kong people nowadays. It is in this sense that the measures suggested by the Financial Services Development Council on Thursday will go a long way in helping improve the well-being of Hong Kong people if they are put into practice. This would in all likelihood greatly enhance the pension scheme’s ability to provide retirees with sufficient retirement protection.
Ideally, introducing a universal pension scheme sponsored by the government is the perfect way to ensure every Hong Kong resident enjoys sufficient retirement protection, as suggested by some politicians. But the experience of many advanced economies with a welfare state has proved that a government-sponsored retirement system is financially unsustainable. This is why the special administrative region government has insisted on developing a multi-pillar retirement solution for Hong Kong people, of which the Mandatory Provident Fund is one of the three existing pillars. Another pillar, the non-contributory public provision or social welfare, includes the Comprehensive Social Security Allowance, the universal Old Age Allowance and the Old Age Living Allowance, as well as other dole-outs aimed at the less well-off elderly. The third pillar is voluntary savings, including savings-related insurance and other personal savings.
With the city’s population aging rapidly and the labor force dwindling while public expenditure on social welfare reaching a high level, the government’s capability to raise or even maintain its current level of public provision is increasingly constrained.
Enhancing the role of MPF in retirement protection is therefore the only feasible solution to fill the retirement provision gap. That is exactly what the FSDC’s five recommendations aim at achieving by building a larger pool of assets within the MPF system via bigger contribution.
The MPF’s current 10 percent rate of aggregated employee and employer mandatory contributions, with an absolute amount cap of HK$36,000 per annum, is undoubtedly insufficient for workers to fund a viable retirement. Many experts believe employees need to save at least 20 percent of their incomes to maintain the same standard of living post-retirement. In fact, Singapore’s Central Provident Fund presently requires a 37 percent aggregate contribution rate from the employee (20 percent) and employer (17 percent). This is approximately 3.2 times higher than the level in Hong Kong.
The tax incentives proposed by the FSDC might help encourage employees to voluntarily increase their MPF contribution. But raising the contribution from employers is much easier said than done, given that they have been fighting tooth and nail to defeat the government’s effort to scrap the offsetting mechanism that allows employers to offset long-service and severance payments from their contributions to the MPF. Hong Kong employers have been adamant in fighting against any move to increase worker benefits including MPF contribution, citing “unbearable financial burden”. But the fact that Singapore’s employers have been contributing two times more to their employees’ pension scheme than Hong Kong employers do and are still doing well suggests the latter’s “unbearable financial burden” claim is hardly justifiable. The government will need to demonstrate stronger political will if it is to genuinely enhance the role of the MPF in retirement protection.