The Hong Kong Investment Fund Association (HKIFA) is mulling various incentives to entice Hong Kong's retail community to save more for retirement, such as introducing a tax-free scheme or even a government matching programme.
Bruno Lee, chairman of the HKIFA unit trust sub-committee, and his 10-strong team are overseeing these efforts, which are still in their preliminary stages.
Hong Kong remains behind developed market counterparts when it comes to retirement savings, says Lee, who is also Asia ex-Japan head of retail at Fidelity Worldwide Investment. At present, apart from private savings, the only publicaly available options for retirement savings are through social security schemes and Hong Kong's Mandatory Provident Fund (MPF).
Yet in the US, UK and Japan, capital invested in individual retirement accounts (IRAs) is tax-free or deferred up to a certain amount. There are also matching schemes, such as Fidelity's 401K plan in the US, in which a company will match an employee's contribution in the savings plan.
It's important that Hong Kong catches up to its developed market counterparts, Lee says, otherwise people will not have enough in retirement savings and governments will have difficulty meeting liabilites.
"We're thinking about what kind of incentives will encourage people to save more, and will people even respond to these incentives," Lee says. "We're trying to help the Hong Kong [population] look at any opportunities to develop their retirement savings."
It's difficult to gauge how the city's populace will react to savings incentives such as tax-free savings or a government-matching programme. The MPF scheme is not popular in Hong Kong – one attendee at a conference spelled out to AsianInvestor that investors would rather put their money to work in the stock market or in property as opposed to being forced to invest in a pension.
So it's possible that incentives may not entice retail investors to increase their savings.
One issue that will undoubtedly surface is cost. Lee acknowledges the cost of the incentives will hit local governments in the near term. But he argues that long-term benefits outweigh near-term costs – retail investors saving more could reduce future government liabilities, as there will be less pressure on them to support ageing populations.
To get an idea of what would appeal to the city's retail investors, HKIFA is planning on sending out a survey, after partnering a research firm.
Lee hopes the survey will reveal the thinking of the local retail community. He did not say when the survey will be completed.