Hong Kong’s Mandatory Provident Fund (MPF) system may soon change its payout schedule, which would allow contributors to access their money before retirement.

At the moment, contributors to Hong Kong’s defined contribution (DC) scheme can only access their funds at the age of 65, barring a few exceptions such those claiming incapacitation, employees stopping work at age 60, or residents leaving Hong Kong permanently.  

However, MPF chairman Anna Wu Hung-yuk, speaking at the Global Retirement Savings Conference at the Renaissance Hong Kong Harbour View hotel yesterday, noted that MPF Authority is “looking at ways to change the lump sum payoff”, which include phased or staged withdrawals.

MPF, which covers 2.6 million people in the territory with a total AUM of HK$455 billion ($58.7 billion) as of March this year, is awaiting local government approval before it can alter the payout scheme. A spokeswoman declines to speculate on a timeline.

One attendee told AsianInvestor on the sidelines that mandatory pension schemes are unpopular in Hong Kong, saying that locals would prefer to invest in the stock market or property market than be forced to contribute to a pension. As such, altering the payout scheme could have a big impact.

It marks the latest move for the MPF which announced a Employee Choice Arrangement last September, providing members with more freedom to choose their trustee and MPF scheme.

MPF has some catching up to do with regional peers. Singapore’s Central Provident Fund allows for early withdraws for those seeking to pay for college, high medical bills or buy a new home, Wu notes.

However, as Singapore’s monthly contributions are 30% as opposed to MPF’s 10% (5% from the employer, 5% from the employee), it’s not necessarily a fair comparison, she adds.

MPF also recently proposed increasing the minimum and maximum monthly contributions by employers and employees, to start in November.

Wu notes that the existing mandatory contributions – a minimum of HK$325 ($41), or 5% of those earning HK$6,500 per month, and a maximum contribution of HK$1250, or 5% of those earning HK$25,000 – are too little and not enough to get retires “through the rainy days” in future.

As such, in a June proposal to the government, MPF is seeking to increase contributions to HK$355 per month, or 5% of those earning HK$7,100 per month, and HK$1,500, or 5% of those earning HK$30,000 a month.

While not a huge rise, Wu notes that increasing mandatory contributions is never easy in Hong Kong and always faces huge resistance from both employers and politicians.

“We have increased the mandatory contribution over the past 12 years, which led to a lot of resistance from employers, and the political resistance is still very much there as well,” Wu tells attendees. “We had no luxury starting from ground zero. But we do have confidence ... based on the expertise around the world and the prospects... that contributions will rise.”

The DC scheme is looking to alter the employer/employee severance payout issue as well. When employees are laid off, employers are required to pay a severance package, and as it stands, employers can dip into part of the MPF monthly contribution to offset the severance payment.

MPF is pushing the government to examine the issue, arguing that employers should not be allowed to take money from the scheme as “severance pay is labour welfare and retirement is retirement”.

Wu also mentioned a push by the DC scheme to shift its operations electronically, which would make enrolment, contributions and transfers much more streamlined and straightforward, although notes significant challenges involved when moving from paper to paperless.

There are still a number of employers in Hong Kong that are not computer literate, and also some contributors who are illiterate full stop. As such, considering an “appropriate scheme to fit such an uneven landscape” is a tall order, Wu admits.

Annualised returns of the MPF system from its 2000 inception are 4%, and Wu notes the MPF is often criticised for not taking enough risk. “I never gamble in the races. But I can tell you our equity exposure is over 60%, which is amongst the highest amongst [pension] schemes in the world.”