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Hong Kong's Mandatory Provident Fund
By Alan Siu
Introduction
The population of Hong Kong is relatively young when compared with many developed economies, but is getting older quite rapidly. Today people aged 65 and above account for about 10 percent of the population. This proportion is projected to be 13 percent by 2016 and 20 percent by 2036.
The Mandatory Provident Fund (MPF) Schemes Ordinance enacted in 1995 provides the legal framework for the establishment of a system of employment-based, privately managed, defined-contribution retirement savings schemes. The objective of the MPF system is to provide a formal system of retirement protection. Prior to the system, only about one-third of the 3.4 million workers, mainly civil servants and professionals, benefited from some forms of retirement benefits.
As the population gets older, there will be more retirees and fewer workers. In order to maintain the same standard of living, the economy will need to be more productive. This can be brought about by additional savings to increase the capital available to the economy in the future. The MPF system is a forced retirement saving program. A typical worker is required to contribute 10 percent of his earnings to an investment fund. Whether the system will succeed in raising the saving rate is unclear. On the macro level, Hong Kong already has a high saving rate of more than 30 percent. There are no statistics on household savings. It is unknown how many families have a saving rate of less than 10 percent, and how many will be induced to save more. People can undo the forced saving by increased borrowing.
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