Employee Choice Arrangement (ECA) offers Hong Kongers a new right over how their pension assets are invested.
MPF is despised and therefore neglected by most Hong Kongers. It is widely perceived as a tax and a boon to fat-cat financial institutions.
Mike Button, chairman of the Hong Kong Retirement Schemes Association, wonders if this can change. He had the good fortune to see the opening ceremony of the London Olympic Games, which paid tribute to British icons: the Beatles, James Bond…and the National Health Service.
“Is it possible that one day Hong Kong will take pride in our own retirement system?” Button muses.
ECA is, of course, just a small step to enhancing MPF. It does not address much bigger issues, such as increasing contributions or improving the lump-sum payment structure, let alone the need for Hong Kong to introduce a national pension system beyond the employer-centric MPF. But it is also the start.
All of these are important to getting ECA right, but none is sufficient to get MPF anywhere closer to the status of Britain’s NHS or Australia’s superannuation system in terms of social respect and importance. But this could happen gradually as MPF assets grow and people become more aware of their rights and options.
Francis Chung, Hong Kong chief executive of MPF Ratings, notes that 10 years ago superannuation in Australia was a small, obscure industry. That changed with the introduction of portability in 2004. Although it was a gradual process, it led to superannuation becoming a highly visible, much-discussed part of Australian lives.
Hong Kong’s environment will be more challenging. Compared with Australia, MPF has fewer providers, much smaller contributions, tighter regulation, no tax incentives, fewer financial advisers, and for now only very limited choice. “But MPF can become an industry and a brand,” Chung argues, noting how many service providers are gearing up to compete for business.
MPF is turning from an employer-led arrangement to a consumer finance business. The pace may be gradual, but the long-term implications are revolutionary.
One way to determine MPF’s progress with limited choice will be the extent to which it becomes a means of retaining staff. Today most companies, if they want to reward long-serving employees, may have a more generous pension scheme, or use other forms of remuneration. MPF is the most basic, legally required offering. But might it one day be used as an incentive?
KT Lai, former group HR head at CLP Holdings, says employers could increase their matching contributions, or pay out bonuses to MPF accounts.
Jack Mak, senior benefits consultant at Towers Watson, says companies dismissive of MPF as a mere legal obligation may be missing a trick. His firm’s research finds Hong Kong employees place a much higher value around pension-related benefits than companies give them credit for.
“Companies may be spending resources on benefits that workers don’t value as much,” says Mak.
As those employees become more aware of what MPF is all about, who knows? A little empowerment can go a long way.