Retirement savings shortfall fears stalk Hong Kong people lacking access to post-retirement MPF solutions

Survey finds demand for post-retirement MPF solutions offering dividend payments and regular income stream

Hong Kong – New research by Manulife Hong Kong¹ has revealed that around one-third of working people in Hong Kong are likely to invest their retirement savings – including accrued Mandatory Provident Fund (MPF) benefits – in stocks when they retire, exposing them to the risk of high volatility. Manulife’s findings underscore the lack of effective post-retirement solutions that offer retirees a regular, stable income stream.  

By the time they retire, respondents expect to have saved HK$3.97 million. Based on their expected retirement age (63 years old) and the average lifespan in Hong Kong (85 years old)², their average monthly disposable income would be about HK$15,000 for a total of 22 years during their retirement. Over half (52%) of the respondents believed that their savings would not be sufficient to support their retirement. To bridge the retirement shortfall, respondents plan to spend less, seek government subsidies, continue working, or invest.

“Retirement is the time to reap one’s harvest. The size of this harvest depends a lot on how carefully you plan for your retirement, in both pre- and post-retirement stages,” said Raymond Ng, Vice President and Head of Employee Benefits at Manulife Hong Kong. “Wealth accumulation is inevitably the key in the pre-retirement stage, and one of ways to achieve it is through more active MPF account management. After retirement, putting funds into cash savings is not ideal, because inflation will without a doubt erode them, and investing in stocks exposes retirees to the risk of volatility. Equally important, however, is preserving and growing a nest egg in the post-retirement period as life expectancy is getting longer nowadays.”

Although they may be faced with insufficient savings for the retirement they had hoped for, more than half of the survey respondents indicated that they would not withdraw their MPF accrued benefits in a single lump sum when they retire, or they have yet to make their decision.

The Mandatory Provident Fund Schemes Authority (MPFA) recently issued its “Principles for Developing Retirement Solutions”³ (“the Principles”) to assist with the development of retirement solutions under MPF system to better meet MPF scheme members’ investment needs in both the contribution and withdrawal phases. According to the Principles, a retirement solution should be transparent, simple and easy to understand. The expected outcome should be suitable for the contribution and/or withdrawal phases, while its performance should be reviewed regularly to ensure that it is in line with the desired outcomes, and the fee level should be appropriate.

“At Manulife, we believe that it’s time to offer something more to help members meet their retirement needs. To echo the MPFA’s recent call for retirement solutions, we are planning to introduce a brand new solution to our MPF platform in the near future which allows members to stay invested upon their retirement with drawdown benefits,” Mr. Ng said.

As the largest MPF scheme sponsor in Hong Kong⁴, Manulife has undertaken the requisite research to better understand public acceptance of its MPF post-retirement solution, which is designed to provide a regular income stream that aims to beat inflation. The survey found that nearly half of all the respondents (49%) were keen on adding such a solution to their MPF portfolios. The top three features most welcomed by respondents were dividend payments (52%), a stable income after retirement (48%), and low risk (30%).

Among those interested in such a post-retirement solution, the majority (77%) said they would re-allocate their existing MPF portfolios to include it, with most (74%) saying they would allocate more than 20% of their portfolios to it. The remainder of this group (23%) preferred to make additional voluntary contributions to include such a solution in their MPF portfolios.

Currently upon retirement, Hong Kong people have three ways to manage their MPF: withdraw all MPF benefits in a lump sum; withdraw them in instalments; or keep their MPF benefits in their accounts for continuous investment.