Universal retirement protection back on the agenda after MPF’s 12% loss

This article is a rewrite of a report from April 2012.

When Hong Kong’s Mandatory Provident Fund posted a 12 per cent loss in 2011, critics found their Exhibit A. At a Legislative Council welfare panel in April 2012, labour and welfare groups cited the figure as proof the MPF could not withstand market volatility — and renewed calls for a universal retirement protection scheme.

What is universal retirement protection?

Universal retirement protection means a government-led pension scheme covering everyone. At the April 2012 Legco session, several groups urged the government to set one up, arguing MPF contributions were too small to support retirement — especially for low earners — and that the 12 per cent MPF loss in 2011 showed the system could not handle market swings. About 40 campaigners petitioned outside the legislature.

What reforms did the groups propose?

A welfare council and others tabled MPF-specific reforms:

• contribution subsidies for low-paid and unemployed people
• a public trustee to manage MPF funds, with tighter regulation of trustees’ investment choices
• a default investment option and a public annuity scheme
• abolishing the MPF offsetting mechanism against severance and long-service payments

Conceding that consultation to implementation would take more than three to five years, they proposed an enhanced fruit-money allowance for the elderly as a stopgap. Campaigners noted over 30 per cent of elderly Hongkongers lived in poverty, a problem set to worsen with ageing.

What is the MPF offsetting mechanism?

The MPF offsetting mechanism lets employers use the accrued benefits from their MPF contributions to offset severance payments or long-service payments owed to dismissed employees. Under the 2012 rules, this eroded workers’ retirement savings whenever they were laid off; campaigners wanted the mechanism scrapped immediately.

How did officials respond?

The incoming chief executive proposed a means-tested allowance for the elderly, though public-housing representatives worried asset tests would exclude many in need. The outgoing chief executive refused to introduce universal retirement protection. Campaigners urged the new administration to put the issue on its agenda, create a dedicated unit and consult the public.