Hong Kong's pension fund, Mandatory Provident Fund (MPF), a system which covers 73 percent of the employed population in Hong Kong, needs to address problems to manage risks, a PricewaterhouseCoopers (PwC) report said on Tuesday.
The problems include high fees, unattractive returns, a reliance on paper-based processing, and a blanket approach that offers few incentives for members to pay more into their MPF portfolios, said PwC's Review of Hong Kong's MPF System: Recommendations for Key Reforms.
Hong Kong is not immune to the global trends buffeting the pension landscape. The proportion of the population aged 65 and above is estimated to rise to 36 percent by 2064 from 15 percent in 2014, the report said.
The overall dependency ratio, namely the number of people aged under 15 and over 64 relative to the population aged between 15 and 64, is projected to rise to 83.1 percent in 2064 from 37.1 percent in 2014, it said.
Lower and higher income earners are discouraged from increasing their MPF investment because of a lack of incentives, such as limited tax breaks.
In addition, comparatively high fees due to inefficient administration processes and layering of investments affect the total return on investment.
The 16-year annualized return on all MPF funds is 2.8 percent, compared to an annualized 5 percent return for the Hang Seng Index over the same period.
Inadequate financial literacy, which could help MPF members make informed decisions about their portfolio and a lack of post-retirement investment products also hinder the transformation of Hong Kong's pension system.
The World Bank defines MPF as a mandatory, privately managed, fully funded contribution scheme, said Marie-Anne Kong, asset and wealth management practice leader of PwC Hong Kong.
"However, improvements to the system are overdue, given that it is 17 years since it was first implemented. If we don't address these problems it may outlive its usefulness and not be fit for purpose in the near future," she said.
