Lawmakers and pension experts have urged the Hong Kong government to follow Australia’s lead and allow employees to dip into their savings in the city’s pension scheme to help them cope with the Covid-19 pandemic.
The government, pension regulator and some commentators, however, have reservations, as they point out that the law would have to be amended and could lead to massive withdrawals from the Mandatory Provident Fund (MPF). The scheme is already the least adequate in the world to cover the future living cost of people after their retirement.
Peter Shiu Ka-fai, a lawmaker who represents the wholesale and retail sectors in Hong Kong, urged the government to allow the 2.9 million Hongkongers covered by the MPF to withdraw some of their savings to meet their urgent financial needs.
“Many companies have cash flow problems while many employees may lose their jobs,” Shiu said. “Under such special circumstances, the government should adopt this one-off measure to allow people to tap some of their MPF to cope with their financial problems.”
“The government should also consider contributing the MPF for both the employer and employee for a six months to help relieve their burden.”
The Australian government will allow people facing financial stress to withdraw up to A$20,000 (US$11,580) of their pension savings in the next four months. The move is part of a sweeping package announced on Sunday to combat the economic havoc caused by the coronavirus outbreak, according to a Bloomberg report.
It will put as much as A$27 billion back into the pockets of working Australians, Treasurer Josh Frydenberg said.
Malaysia also unveiled a similar plan on Monday, allowing members of the state-managed pension fund to make monthly withdrawals for up to a year to ease their financial burden. The move could put about 40 billion ringgit (US$9 billion) of their savings back into their pockets, it said.
The government is also giving employees the option to lower their mandatory contribution from next month in order increase their disposable income, Prime Minister Muhyiddin Yassin said in a televised announcement, promising more stimulus later this month.
The Covid-19 outbreak has infected over 445,000 people globally and forced large swathes of the population to stay home.
The contagion, which has infected more than 410 people in Hong Kong, has ground much economic activity to a halt, with almost all tourists deterred from visiting, many events cancelled, and shops, restaurants and other venues struggling as people refrain from going out.
The Hong Kong government is not in favour of this option, a government source told the South China Morning Post. There are legal issues surrounding the early withdrawal of MPF savings, which are meant for retirement protection only, the source said.
It may need several years of lengthy process to change the law which is not the quickest way to help the employees, the source added. Other relief, such as the government’s promised HK$10,000 (US$1,290) cash handout to all permanent residents, is more effective, he said.
Hong Kong has no unemployment insurance which has made lives harder for those who have lost their jobs. The unemployment rate soared to 3.7 per cent at the end of February, with 134,000 people losing their jobs. The government has warned the jobless rate may go up to 5 per cent, leaving 180,000 people without work.
The source said it was important to note that the MPF, with assets worth about HK$1 trillion, is much smaller than the Australian pension scheme.
Australia’s had assets of A$2.9 trillion as of the end of June 2019, making it the world’s fourth-biggest pension fund, 13 times bigger than Hong Kong’s. Australia requires employers to pay 9.5 per cent of the staff member’s salary per month while the employee can make a voluntary contribution.
In Malaysia, the Employees Provident Fund had about 839 billion ringgit in accumulated contributions at the end of 2018. Employees set aside 11 per cent of their pay to the fund every month while employers chip in 12 to 13 per cent.
Hong Kong’s MPF contribution much less than these scheme and hence it ranks among the least adequate in the world in terms of meeting the future needs of pensioners, among 34 markets in 2018 tracked by Melbourne Mercer Global Pension Index.
The MPF, established 20 years ago, is a mandatory retirement plan that requires both employer and employee to each contribute 5 per cent of monthly salary up to a combined HK$3,000 per month. Local law stipulates people can only cash it in when they turn 65.
A spokeswoman for the Mandatory Provident Fund Schemes Authority (MPFA), the pension regulator, said that allowing scheme members to early withdraw their MPF on the ground of financial difficulties does not align with the original objective of the MPF as its purpose is to provide basic retirement protection for the Hong Kong working population.
“To address the financial difficulties faced by the SMEs and employees, the MPFA noted that the government has recently launched an array of measures … which would benefit employees [including] cash payout of HK$10,000 to Hong Kong permanent residents aged 18 or above, with a view to relieving people's financial burden,” the spokeswoman said.
“The government should pay mandatory contribution for both employers and employees for a certain period of time. We can consider the Australian arrangement if unemployment reaches a certain percentage,” said Kenrick Chung, general manager of employee benefits at Realife Insurance Brokers.
Both the early withdrawal of MPF savings and a suspension of contributions would require a change of law first, according to Glenn Turner, chief operations officer at independent financial planning company Altruist Financial Group.
Setting the criteria for whether someone is facing the necessary financial hardship would be complicated, and it will take time to process all the potential applications for withdrawal, he said.
“Once the money is withdrawn, for sure people will not redeposit it,” Turner said. “Suspending contributions is not complex and is easy to implement. It can be restarted easily once the crisis is over. This is a revocable option.”
Elvin Yu, chief executive of pension consultancy Goji Consulting, agreed people should be able to access their MPF savings earlier, up to a certain limit.
Christopher Cheung Wah-fung, a lawmaker for the financial services sector, agreed with the proposal to suspend MPF contributions but not the early withdrawal of savings.
“The MPF is for retirement protection so better not to use the money for other purposes,” he said. “However, as many companies and individuals are suffering from the outbreak, it would be good to take a holiday from MPF contributions for three months.”
More from South China Morning Post:
- Coronavirus will hurt the HK$1 trillion pension savings of 3 million Hongkongers as stock markets slump, warns MPF watchdog
- Hong Kong’s MPF pension scheme reports third-best year of the decade, returning 12.6 per cent in 2019, with stock funds the biggest winners