SCMP Saturday, July 7, 2001

Pity the pension pittance


Grumbling as he clears tables in a small Chinese restaurant in Tsim Sha Tsui, Chan Pong-kau worries how he will scrape by once he has to retire.
The 56-year-old Mr Chan could normally expect to stop working in about 10 years. But he doesn't see how he can afford to. Of the $6,000 Mr Chan makes each month, $300 is deducted from his pay and put into his Mandatory Provident Fund (MPF) account; his employer makes a similar contribution. That cuts into Mr Chan's income today, but does not guarantee a livable pension tomorrow. A decade from now, a social worker estimates Mr Chan's MPF payout will probably amount to only about $600 per month.
"There's nothing I can do," he says. "Like many other workers, I'm forced to contribute to MPF rather than save on my own."
The compulsory MPF scheme, which took effect on December 1 last year after a decades-long political battle, is supposed to provide a basic financial cushion for Hong Kong's retirees. But Mr Chan and many other low-wage and older workers see the MPF as adding to their money problems rather than easing them.
Their plight has prompted social workers and grassroots legislators to call for exemptions for more low-income employees from the requirement to make MPF contributions, and for supplementing the MPF with an adequate universal retirement scheme that would cover all of Hong Kong's elderly. Their difficulties have also highlighted the disastrous consequences, especially for older workers, of the so-far dismal performance of MPF investments.
But the Government only seems willing to tinker on the edges of the MPF scheme, by considering employees' complaints that employers are forcing them to declare themselves self-employed (and so responsible for both employee and employer contributions to MPF), and employers' complaints that the programme's administrative requirements are too complicated and time-consuming.
Last month, Stephen Ip Shu-kwan, the Secretary for Economic Services, promised the Legislative Council that a review of MPF would be completed by the end of the year. But he explicitly excluded from this review such fundamental issues as supplementing MPF with a universal pension scheme.
Basic issues are, nevertheless, being raised by grassroots legislators. At present, about 276,000 employees earning less than $4,000 a month are exempt from contributing to their MPF accounts, although their employers must still contribute. An attempt to raise the exemption level to $6,000 - which would have relieved another 342,000 workers from having to contribute to the scheme - was debated in Legco on June 13.
"Contributions of a few hundred dollars per month are huge for those who get $5,000 or $6,000 in a family of four," says Chan Kwok-keung, a legislator representing the labour constituency.
Mr Chan's non-binding motion to raise the exemption level was voted down by representatives of commercial, financial and other business-oriented constituencies. Andrew Cheng Kar-foo, the Democratic Party's spokesman on labour issues, has submitted a similar, but binding, private member's bill. However, he has not received the Chief Executive's permission to introduce the bill.
MPF covers essentially all full- and part-time employees, except domestic helpers, self-employed hawkers and those covered by an exempt pension plan. Employers and non-exempt employees each contribute the equivalent of five per cent of the first $20,000 of an employee's monthly income.
Frederick Fung Kin-kee, the chairman of the Association for Democracy and People's Livelihood and a legislator representing Kowloon West, says MPF seems designed for people now in their 20s and 30s - preparing them for a far-off retirement - not for people who are already older.
"We basically never agreed with the scheme," Mr Fung says. "And we keep fighting for a pension scheme for all old people."
To understand the extent of the pre-handover administration's climbdown, compare the terms of the derailed scheme for a universal Old Age Pension Scheme with those of the existing "nearly" universal Old Age Allowance.
The pension scheme would have paid every person 65 years or older a minimum monthly income of $2,300, regardless of financial situation. In contrast, the current allowance pays $625 a month to 65- to 69-year-olds who have a monthly income of less than $5,910 and assets worth less than $169,000; and $705 a month to anyone 70 or older, regardless of financial situation. Last month, however, the Government floated the suggestion that over-70s able to pass the means test now applied to their younger counterparts might become eligible for an additional $300 per month.
The monthly stipends, though small under both schemes, would have been more than three-fold larger under the abandoned programme. Larger payments could make a big difference to Hong Kong's elderly. A recent government report profiling the SAR's elderly and soon-to-be-elderly found that nearly four out of five of those aged 60 or older and living outside of homes for the aged have monthly incomes of less than $5,000. Four in 10 have monthly incomes of less than $2,000. A universal pension of the type discarded in 1995 could dramatically improve living standards for these people.
But David Li Kwok-po, an unaffiliated legislator representing the banking constituency, disagrees with Mr Fung and other proponents of a universal scheme. He says it is inappropriate to reconsider implementing such a programme. Down that road lies disaster, he warns, as it took years for the community to agree on MPF. In this view, he is joined by Selina Chow Liang Shuk-yee, a vice-chairman of the Liberal Party and the legislator representing the wholesale-and-retail constituency.
"It's just unacceptable to discuss the fundamentals of the policy again when it has been implemented for [only] several months, and millions of employees and employers are beginning to get more familiar with it," she says.
But investment returns earned on MPF accounts have so far been abysmal. A survey of the 290 MPF investment vehicles on offer found that 167 - or 57 per cent - had posted negative returns in the first four months of this year, according to the Investment Funds Association. The worst-performing fund was down by more than 13 per cent, while the best-performing one gained five per cent.
At this rate, even workers earning quite a bit more than Mr Chan - say, $10,000 a month - will have an inadequate nest egg upon retirement, says Leung Yiu-chung, a unionist legislator and a member of the Neighbourhood and Workers Service Centre's executive committee. "A worker earning $10,000 a month and contributing to the MPF each month for 35 years can only [expect to] receive about $2,000 a month when he retires," he says. "For people earning about $6,000, the payout would be $1,200 a month. MPF just does not offer any help to the workers."

Paul Chow Man-yiu, the Investment Funds Association's chairman, attributes the poor performance of local pension funds to the global stock-market slump. Meanwhile, Rex Auyeung Pak-kuen, the managing director and chief executive of pension house Principal International Asia, points out that MPF is a long-term investment. "MPF restricts employees from gaining access to their contributions - plus investment returns - until they are retiring at age 65," he says. "MPF investments last for 20 or 30 years, not just a few months." That might be true for many workers, but it is cold comfort to Mr Chan.

Patrick Poon ( ) and Enoch Yiu ( ) are Post staff writers.