Young Hongkongers can’t retire on MPF alone: the three-pillar warning

This is a rewrite of a report from March 2012.

Hong Kong’s “fourth generation” — the post-80s cohort — mostly saves for short-term goals: a flat, a wedding, a better lifestyle today. Retirement barely registers. Yet a Fidelity survey found 86 per cent of young respondents relied heavily on MPF, some treating it as their only retirement plan — a risky bet.

What is MPF?

MPF is the second of Hong Kong’s three retirement pillars: the mandatory contribution scheme. The World Bank set out the three-pillar concept in 1994. The first pillar is the tax-funded social safety net, such as CSSA, the old-age allowance and health-care vouchers. The second is MPF, the compulsory scheme. The third is voluntary personal saving and insurance — voluntary MPF contributions, private investments and annuity products. The three are meant to balance each other.

Why is relying on MPF alone like standing on one leg?

Because Hongkongers live among the world’s longest lives, so retirement lasts longer and medical bills pile up after employer cover ends. Expecting MPF to fund most or all of retirement spending turns three pillars into one — an unstable foundation. Retirees lose company medical benefits, and anyone dreaming of travel in retirement needs far more saved.

The upside of youth is time: a 30-to-40-year investment horizon plus compounding makes the third pillar powerful. A Fidelity executive suggested four simple steps: set a goal and cost it, allocate assets sensibly, seek information or professional advice, and stay disciplined.