Outside In | What’s the point of a mandatory pension that offers no financial security?
- Hongkongers cashing out their Mandatory Provident Fund last year and this year are likely to get less than they put in
- At the very least, such forced savings should provide a minimum of financial security into old age – focusing on defining the benefits rather than the contributions
One of the most cherished moments of my career was at the 1997 World Bank annual meeting in Hong Kong – three months after China resumed sovereignty. The world’s top fund managers were harassing the Hong Kong government to introduce a compulsory pension scheme and criticising the administration for failing to provide a retirement safety net.
During a presentation on the merits of Hong Kong joining the rich economies with compulsory government-orchestrated pensions, I pushed back from the floor: “Of course, as fund managers you would prefer we put our retirement savings in your hands. But Hong Kong people have an alternative to compulsory pensions: it’s called saving.”
The conviction was deep that savings are more reliably nurtured by savers themselves, rather than entrusted to highly paid fund managers. Families believed fund managers had more interest in the fees that made them rich than in the financial security of Hong Kong families in old age.
I confess I also nurtured a prejudice. My father’s company pension evaporated when his factory went bankrupt during the Thatcher recession. My mother, who only started building a pension when, after raising five children, she became a part-time nurse, reached the compulsory retirement age of 60 with a grand monthly pension of less than HK$10 (US$1.30) a month.
