MPF early withdrawal for terminal illness: the MPFA’s 2012 consultation in three points

As of January 2012, the MPF system had been running for just over eleven years, and the MPFA was consulting the public on withdrawal arrangements. Its proposals: let retired members take their MPF as a lump sum or in instalments, and add terminal illness as a sixth ground for early withdrawal. The Hong Kong Trustees’ Association estimated that if implemented in 2013, an average worker’s account would hold over HK$150,000 after thirteen years of compounding.

MPF early withdrawal: what did the MPFA propose in 2012?

In its January 2012 public consultation, the MPFA put forward two proposals: retired members could choose between a lump-sum or phased MPF withdrawal, while members diagnosed with a terminal illness could withdraw early. The MPFA hoped phased withdrawals would spur the industry to develop retirement income products, with competition keeping fees reasonable. Consultation ran until 31 March 2012, and legislation would be needed before anything took effect.

Why was the terminal-illness proposal controversial?

Under the proposal, members certified by a doctor as suffering from a life-threatening illness could access their savings early, on the logic that MPF exists to fund life after 65 — a purpose that loses meaning for the terminally ill. But Chan Hing-sang of the Hong Kong Trustees’ Association called the bar too conservative: only those with under a year to live would qualify, proving life expectancy would be a gauntlet of paperwork, and a HK$150,000 balance would barely dent serious medical bills. The MPFA said it could not yet estimate 2013 account balances.

How would phased MPF withdrawal help retirees?

Phased withdrawal would let retirees avoid liquidating everything at once, drawing down in stages while the remainder stayed invested according to their risk appetite and other savings. The Hong Kong Investment Funds Association argued seniors could take a portion first, then pick from new retirement products offered by the nineteen trustees to fund twenty to thirty years of retirement — with fiercer competition pushing management fees down.

Would MPF fees eat into seniors’ savings?

That was the other flashpoint of the 2012 consultation. Chan warned that retirees unfamiliar with new investment products could be easy prey: even a conservative fund yielding 0.5% could charge 1% in management fees, and without a fee cap on senior retirement portfolios, trustees might exploit them. The MPFA noted average MPF management fees stood at 1.79% as of January 2012. For how fees affect long-term returns, see the MPF education hub.