Chief Executive Donald Tsang said the government is studying ways to enhance the Mandatory Provident Fund (MPF) scheme, including early withdrawal, in his seventh and last policy address on Wednesday.
According to earlier press release delivered in September by the Mandatory Provident Fund Schemes Authority (MPFA), the management board of the authority agreed on the principle that "terminal illness" is added as a new ground for early withdrawal of MPF. The MPFA, however, still needs to seek for views from the MPFS Advisory Committee together with a public consultation.
Tsang reconfirmed the government’s eagerness for such an amendment in his 2011-12 policy address that "the MPFA will also look into whether the withdrawal of MPF accrued benefits in phases after retirement and early withdrawal under specific circumstances by employees should be allowed."
Kenrick Chung, director of MPF business development at Convoy, believes it is a piece of good news to the industry. "As the Chief Executive mentioned the plan of early withdrawal again after the announcement from the MPFA, we believe the government is willing to pay more attention to its development."
Under the proposed amendment, investors will be allowed to withdraw some of their MPF contributions before retirement in the case of terminal illness. Chung expects the new interaction between pension and health protection will increase employee’s awareness towards MPFs.
"MPFs will become more popular after the implementation of early withdrawal as people will be motivated to manage their accounts. Besides, investors would require more professional knowledge on fund managements, indicating a potential increase in related consultant services," added Chung.
Rex Auyeung, regional president of Principal Financial Group, also welcomes the potential enhancement of the MPF scheme as the wealth within the system has been accumulated for a decade and it is a right moment for investors to learn more about their pension plans.
Auyeung said the government should adopt strict rules concerning early withdrawals. "We expect ‘terminal illness’ to be the only ground for early withdrawal of MPFs because if people can withdraw their contributions too easily, the scheme will lose its true meaning for pension saving.".
In addition, Tsang also mentioned in the policy address that the government will strengthen employees’ right of choice in order to reduce the fees of MPF schemes. The authority will also study supporting measures to facilitate the implementation of a full portability arrangement in the future. Auyeung, however, believes the government will take at least three years to launch the policy after the implementation of the semi-portability arrangement.
According to Tsang, about 85% of Hong Kong’s workforce has been covered by forms of retirement protection since the launch of the MPF system. After reductions of fees and charges, MPFs record an average annual return rate at 5.1%.