Introduction
Just like many other countries in the world, Hong Kong has a swiftly ageing populace. Recent demographic trends indicate an impending increase in the number of retired people without retirement security which suggests that more public funds are released to ease their predicament. Without the aid of the government there is bound to be a lot of human suffering which may lead to a great deal of social unrest. Although the need for retirement security has not been disputed, the form of such security has been debated for many years. Central Provident Fund (CPF), Old-Aged Pension Scheme (OPS) and the Mandatory Provident Fund (MPF) are some of the options that have been debated as forms of retirement security options. However, after evaluating equity, stability and sustainability, rate of return, political attractiveness and the effect on economic growth, MPF has been found to be the most suitable option to Hong Kong.
Background of MPF Schemes
In Hong Kong, the principle of Positive Non-interventionism was adhered as the official policy for a long time. Hong Kong did not have any official retirement security system in place apart from the civil servants and employees of certain large companies. Retirement security was first identified as a problem and an issue worthy of consideration in the year nineteen sixty six by the Legislative Council (LegCo). Following that, there were debates on whether Hong Kong should adopt the Singaporean type of Central Provident Fund. This was debated over in the year nineteen seventy five and the year nineteen eighty seven in the LegCo. The Hong Kong government however, maintained that the Central Provident Fund was not an option as the government did not want to be involved in the management of large amounts of money as that violated the traditional non-intervention policy.
In the year Nineteen ninety one the members of LegCo pushed the government to create a Central Provident Fund or other types of mandatory retirement schemes. Though the proposal was unsuccessful, the government retorted by instigating a ‘Working Group on Retirement Protection’. In the year nineteen ninety two the working group launched a consultation paper that was titled ‘A community-wide retirement protection system’. It recommended that the government establish a mandatory pension system in Hong Kong. Though the LegCo selected the Central Provident Fund, the government was still against it and maintained the private provident fund as its working proposal. However, in the year nineteen ninety three the government changed its position and recommended the Old-aged Pension Scheme (OPS). This recommendation instigated an overflow of debate. Supporters for OPS argued that it granted instant benefits for today’s old people and influenced revenue redistribution. Opponents on the other hand argued that though the OPS would benefit the today’s old people the costs would be incurred in the future.
In the year nineteen ninety five the government abandoned the OPS and established the Mandatory, privately managed provident fund system and the LegCo passed the MPF by motion in March of the same year. In September, nineteen ninety eight the MPF Authority was established and was considered a milestone in the history of retirement security in Hong Kong.
Demographic Structure of Hong Kong
The table below indicates that there has been an evident growth in the size of old people population in Hong Kong.
Hong Kong Population Projections (in thousands)
Total population
Rate of increase
Age 65+ population
Age 65+ rate of increases
Elderly ratio
Source: Census and Statistics Department, Hong Kong Population 1991-2011
The table gives evidence that the old people population will be increasing more rapidly than the general population in the subsequent decades. The total fertility rate also has a declining trend from 4.5 percent in the year nineteen sixty five to 1.19 percent in nineteen ninety six. Longevity has also increased with the increase in life expectancy, from seventy five years in nineteen eighty two to seventy nine in the year nineteen ninety six. In the year nineteen ninety seven, the elderly population accounted for ten percent of the population. It is estimated there will be an increase to thirteen percent in the year twenty sixteen and to twenty percent by the year twenty thirty. This means that in future fewer people will be able to pay taxes and this has an important impact on the retirement security in Hong Kong.
Description Of MPF
The MPF system is a contributory system that is related to employment where people aged between eighteen and sixty five are supposed to take part in and contribute to MPF schemes that are registered. Every employee is supposed to contribute five percent of their total income and the employer has to contribute to match the contributed amount. People earning less than the minimum wage are not required to contribute. However, the employer has to contribute five percent of the employee’s earnings. All contributions are accumulated in the members individual account and saved until the member reached the retirement age of sixty five years. In the case of total incapacity, death or permanent departure from the country the benefits are paid to the member.
There are different types of MPF schemes. They include: Master trust schemes which are open employees who have more than one employer and people who are self employed. Employer sponsored schemes which are limited to employee who have only one employer or the employers associate and Industry schemes which are limited to employees and self employed individuals of given industries.
The law in Hong Kong stipulates that all MPF schemes must be created under trust agreement and governed by the Hong Kong law. These schemes must be controlled by trustees who are required to be a registered trust company, meet assets requirements of HK$150 million in funds and net assets, have a significant presence in Hong Kong, and comprise of directors who are appropriate and fit individuals. There are certain groups of people that are exempted from joining the MPF schemes. They include: self employed and employed people above sixty four years, self employed hawkers, members of professional retirement schemes, domestic workers, individuals covered by legislative pension and provident fund scheme, migrants from other countries working in Hong Kong for less than one year and are covered by schemes in their own countries and European union office of the European commission in Hong Kong employees.
Problems Facing the MPF Schemes
Government's Involvement
The government has little involvement and commitment in the MPF schemes. The MPF Authority is responsible for supervising and regulating the MPF system. The government only gives a structure on how the system should operate. This reduces the publics’ confidence in the scheme.
Income Redistribution Element
There is no immediate assistance to today’s old people. The Chief executive of the Hong Kong SAR recognized that the retired population will not enjoy the fruits of the MPF until after some time. He also did not give any commitment to provide for the retired people who are not covered by the scheme.
Assests Security Problem
The MPF invests assets in different investment plans and loss of investment attributed to extreme risk exposure or fraud could lead to increase in mistrust of the scheme and could cause discontentment with the government and public disorder.
Security for Low-income Group
The low income group does not have protection from the MPF system. Employees earning less than four thousand dollars in a month are not required to contribute to the scheme and the contributions made by the employer are not sufficient to maintain the employee’s life after retirement.
Employer Based Scheme
The fact that the schemes are employer based forces the employees to join schemes selected by the employer. The employee and the employer have different opinions on what is a good scheme and this leads to a conflict of interest. The benefits in the schemes belong to the employees and there is a lot of reservation on whether the employers are motivated to select the paramount scheme for their employees.
Accountability of MPF Authority
The MPF Authority is responsible for controlling retirement security funds for the entire employees’ fraternity and people expect that the Authority is operated in reasonable and cost effective approaches.
Education & Publicity Programme
Employees and employers are not completely enlightened on their privileges and responsibilities since there are not sufficient education and publicity programs. This holds back the realization of the system.
Recommendations
The government should get more involved with the schemes and make available more funds to the MPF Authority to reduce the burden it incurs in managing the schemes. This will increase the public confidence in the schemes. The government should also make available urgent assistance to the poor old people. To provide better security for the members’ assets the government should implement a stringent management over the schemes trustees. It should also enhance the retirement security for the low income group by increasing the payment ratio of the employer and also may a specified percentage for the employee. Transfer charges from one scheme to another is very expensive and the government should waive charges for the low income group.
Since employees have stake in the schemes they should be allowed to participate in the selection of the MPF scheme. The MPF Authority should carry out its operations in more transparent ways. The Authority should make reports and accounts available to employees on regular basis. Publicity programs about the MPF schemes should be instigated by the government to improve the level of awareness in the public. The government should also scrutinize the charges implicated by the trustees so as to circumvent exploitation charging.
In conclusion, the swiftly aging population in Hong Kong makes retirement security a very important issue in the society. Over a long period of time there were different schemes considered for implementation. They include the Central Provident Fund (CPF), Old-Aged Pension Scheme (OPS) and the Mandatory Provident Fund (MPF). The MPF was more favored by the government as it was more practical and had many advantages over the other schemes. It was found to be less complicated, reasonable and financially sustainable. It is more equitable to the scheme members and cost effective as it is privately managed and there is a free competition setting. The MPF was made official in Hong Kong in the year two thousand and serves as a basis for building strong retirement security systems.
Works Cited
Hong Kong Government Printer. Census and Statistics department, Hong Kong Population 1991-2011. Hong Kong: Hong Kong Government Printer, 1992.
Shek, Daniel T. L. Advances in Social Welfare in Hong Kong. Hong Kong: Chinese University Press, 2002.
Siu, Alan. "Hong Kong's Mandatory Provident Fund." Cato Journal (2002): 317-332.
