Six flaws of the MPF system: narrow coverage, low contributions, high fees, weak returns

Ten years into MPF, some propose universal retirement protection. First, the six flaws commonly levelled at the current system:

What are the six flaws?

1. Limited coverage. Retirees, housewives, low earners below HK$5,000 a month and the unemployed are all excluded.
2. Contributions too low for retirement. At 5% each from employer and employee (capped at HK$1,000), one study finds a worker contributing from 18 to 65 ends up with only about 40% of retirement needs; the other 60% must come from personal savings and government aid.
3. High fees slammed as overcharging. With HK$300-plus billion accumulated, 2% — about HK$7 billion — goes to management fees.
4. Weak returns. Since 2000, many funds’ returns have disappointed, feeling like poor value.
5. Offsetting against severance. MPF can offset long-service and severance payments, leaving low-paid workers dismissed with little left for old age.
6. Members know too little. Ordinary employees lack fund-selection knowledge and understand little of operations, portfolios and returns — losses follow.

Why talk about universal protection now?

Hong Kong is already an ageing society. In 2009, the 65-plus population hit 13% — past the UN’s ageing-society threshold — and it’s projected to reach 28% by 2039. Without reform, elder welfare and retirement protection will become a crushing government burden and a serious social problem.

To explore ways to plug the retirement gap beyond MPF, visit MPF fund comparison.