The Hong Kong government has been urged to learn lessons from Japan’s new tax-free retirement system in order to encourage greater retirement savings.

The city’s funds association has called for new tax incentives to be introduced in order to boost savings for retirement, with many members of the public ill-prepared for old age.

But a survey shows much of the Hong Kong population to be wary of such schemes, with fears of poor returns uppermost in their minds.

Tabling a new retirement savings plan, the Hong Kong Investment Funds Association (HKIFA) said that the city could take a cue from Japan’s tax-free Nippon Individual Savings Account. The retirement investment scheme had attracted $25 billion by the end of 2014, according to data from Japan’s Financial Services Agency.

Bruno Lee, outgoing HKIFA chairman, said the proposals were being made in view of the poor prospects retirees were facing.

He said: “Our key concern is that without a realistic assessment of what is needed, and a lack of a disciplined approach to prepare for retirement, many Hong Kong people may face a deterioration in their quality of life post-retirement; or even lack the necessary financial wherewithal to outlast the retirement life.

“In view of the ageing population, this problem will only become more and more acute. We believe it is important that the government introduces measures as soon as possible to encourage people to face up to this challenge and take a disciplined approach in retirement investment.”

One idea, which the HKIFA has dubbed the government tax allowance incentive scheme (GTAI), could see personal tax bills cut if individuals made contributions to the scheme every year with a HK$50,000 annual cap.

Currently, an individual with an annual personal income of HK$500,000 making an average tax contribution of 14% faces a HK$70,000 bill. But under the GTAI scheme, a taxpayer earning HK$500,000 and making a HK$50,000 contribution may only need to pay HK$63,000 to their annual tax bill – a saving of HK$7,000.

Such a scheme could prove popular if the government implements it. An HKIFA-commissioned poll found that 51% of the 392 surveyed taxpayers said they would be likely to join such a scheme in order to enjoy a reduction in taxes. The remaining 49%, however, said they were unsure about the scheme, with most citing poor investment returns as a reason to avoid such an initiative.

The HKIFA has also proposed government cash rebates as a way of encouraging savings amongst the population currently not covered by the city’s mandatory provident fund (MPF).

Under the so-called government matching incentive scheme (GMIS), individuals making contributions to their accounts each year would see the state provide a matching cash rebate.

Housewives or full-time employees earning a salary lower than the minimum mandatory contributions and looking to contribute HK$50,000 to the scheme could see the government pay out a 10% cash rebate of HK$5,000 to their retirement account. Meanwhile, those contributing HK$10,000 to their accounts could see the government match that with a 30% cash rebate of HK$3,000.

But with the current MPF scheme heavily criticised for its high costs and low returns, Lee suggested that such schemes, if adopted, would not suffer the same fate, given that the system would be entirely voluntary, benefit from computerisation and would be subject to less administration than the MPF, which involves complex work such as checking contributions from employers.

The association, representing 63 of the city’s fund houses, insisted that talking about potential products to satisfy such a new group of savers was in the early stages, especially given that it would involve government resources. Instead, the new findings could be used as a starting point for a city-wide debate on retirement planning.

Lee added: “The objective of proposing these schemes is to encourage the government, the financial services industry and the general public to work together to better prepare the community for retirement. 

“Tax incentives and matching are important tools to foster actions and instil discipline.  We would strongly exhort the government to introduce these measures so as help the community to be better prepared for retirement.”