Turning Pension Personal Accounts into Mainland China’s Own “MPF”? A 2011 Reform Idea

(Editor’s note: the original was published in simplified Chinese and has been rewritten in traditional Chinese per this site’s convention.) In September 2011, a mainland scholar asked, in effect, what is mpf — and could China build its own? He floated a landmark idea: drawing on international best practice to turn pension personal-account funds into mainland China’s own “MPF”. The proposal rested on Hong Kong MPF’s ten-year record — a mandatory, private, portable personal-account model seen as a viable path to modernising the pension system.

What Is MPF?

What is MPF? The Mandatory Provident Fund is Hong Kong’s compulsory retirement-savings system, launched in December 2000 for all employed persons aged 18 to 65; after ten years, employer and employee participation exceeded 95% and self-employed participation topped 80%, with net annualised returns of 5.5% a year — above the 0.7% inflation rate over the same period.

What International Models Were Cited?

Hong Kong’s MPF itself borrowed from global pension best practice, especially the Latin American model:

• The Chile model: the 1980 pension law separated pensions from health insurance, replacing pay-as-you-go with full accumulation; participants put 10% of salary monthly into private accounts that move with the person, with pensions paid on contribution and investment accumulation at retirement;
• The Australia model: compulsory superannuation adopted in 1992 as the second pension pillar, with employers forced to contribute for all employees; total market assets reached about A$1.3 trillion as of September 2010.

What “MPF-like” Features Do Mainland Personal Accounts Have?

The Social Insurance Law effective 1 July 2011 gave personal pension accounts legal status: basic pension insurance combines social pooling with personal accounts, with employees’ contributions credited to personal accounts. The policy goal was an 8%-of-wages monthly contribution forming personal-account funds. As the scholar summarised, personal accounts already carried MPF-like institutional features: mandatory, private, portable (entitlements move with the person, contribution years accumulate), directly linked to benefits, long-term (accumulating for over 30 years), accumulative, tax-free, funded rather than pay-as-you-go, and market-operated.

The scholar argued personal-account funds would become the fastest-growing, largest-accumulating pillar of mainland China’s pension system — legally mandatory, fully tax-exempt and universally participated, with long-term accumulation dwarfing other pillars. Long-term compulsory accumulation plus market operation could expand stable long-term capital for financial markets, creating a virtuous long-run interaction between pensions and capital markets. To understand the basics of MPF, visit the MPF education hub.