Retirement Protection Is Not Number Magic: Rebutting the “$8,700 a Month” MPF Claim

Professor Raymond Leung earlier argued in the Hong Kong Economic Journal that the Alliance for Universal Pension’s proposal was doomed — calculating that 40 years of MPF contributions would yield $8,700 a month in retirement, dwarfing the Alliance’s $3,000. A rebuttal calls this number magic, built on five sleights of hand.

How was the $8,700 figure calculated?

Assume a 25-year-old earning $12,114 a month, 2% real wage growth, 4.8% real MPF returns, contributing for 40 years to accumulate $2.29 million. Then assume buying an annuity paying $14,500 monthly over 20 years, divided by a 60% employment rate — averaging $8,700 per retiree per month. Against the Alliance’s $3,000, it looks like an open-and-shut case.

What are the five sleights of hand?

First, it makes the Alliance plan’s MPF portion disappear. The Alliance never proposed abolishing MPF — only halving employer-employee contributions to 2.5% each. Including that portion, monthly retirement income under the Alliance plan far exceeds $3,000. Second, it assumes employment rates stay constant despite ageing, waving away the soaring old-age dependency ratio. Third, it assumes retirees can bear the same investment risk and returns as workers — as if ageing reverses. Fourth, it uses a higher return assumption than the Alliance’s, letting compounding work its magic. Fifth, it hides low-income workers’ plight behind averages — behind the $12,114 average wage, many grassroots workers contribute so little they could never accumulate $2.29 million.

So what does the universal pension proposal actually look like?

Tripartite contributions, partially pre-funded, actuarially verified sustainable for decades. Funded by workers, employers and government, it’s a partially pre-funded system — not pure pay-as-you-go — designed to guarantee every elderly person basic living protection, not an idealised equation.

To compare charges and returns across MPF funds, visit MPF fund comparison.