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Impact of Hong Kong’s aging population on retirement protection

Retirement
MPF

By Elaine Hwang | March 24, 2022

Population aging is a common issue worldwide. If the trend continues, it will impose a heavy financial burden on public retirement protection systems. In Hong Kong, this highlights the importance of MPF.

Population aging is a common issue in most countries and regions throughout the world, including Hong Kong. If the trend continues, it will impose a heavy financial burden on public retirement protection systems. In Hong Kong, this highlights the importance of the MPF – which is independent of the Government’s finance.

Retirement population continues to increase

Firstly, let’s break down the Hong Kong population structure: According to information published by the Hong Kong Census and Statistics Department, 19.3% of Hong Kong’s population was aged 65 or above as at mid-2021. This means that out of every 10 Hong Kong persons, approximately 2 are aged 65 years or older. The ratio was only 13.4% ten years ago (2011). This indicates a significant aging of the population over the past decade.

What is even more worrying is that, according to the department’s projection, the aforesaid ratio will increase to 27.6% over the next ten years (by 2031). After another decade (by 2041), the ratio is expected to increase to 31.7% – over 3 people in 10 will be 65 or older.

A further concern is that, over recent years, the birth rate has been falling. On average each couple only has one child. If this trend continues, the working population will keep falling whilst the retiree population will continue to grow.

Increasing pressure on public retirement protection

Having the younger generation support the older generation is fairly common practice in Hong Kong. This concept also applies at society level, where the working population supports the retired population through taxation. The increase in size of the retired population means that each member of the working population will need to support a greater share of the retiree population.

In 2019, each retiree was supported by 3.8 working people. By 2069, this ratio will reduce to 1.4 working people per retiree.

The total salaries tax the Government collects will reduce, all other things being equal, while expenditure on the Government’s Social Security arrangements is expected to increase. The traditional concept of “raising children as a protection against old age” is becoming outdated, with more retirees relying on the Government support. When the government overspend, it may adjust the expenditure on public welfare which will includes the amount of public retirement protection and coverage.

In many countries around the world, social security systems are finding it increasingly difficult to make ends meet, with governments having to increase expenditure and / or by changing the retirement benefits or eligibility in some way – by extending the statutory retirement age, or by reducing the level of pension support, etc.

Members should not solely rely on the Government’s social security system

The Comprehensive Social Security Assistance (CSSA) and Old Age Allowance (commonly known as the fruit money) are part of the public retirement protection system in Hong Kong. By contrast, Hong Kong's MPF is a private retirement system which is independent from the Government. If the Hong Kong Government suffers a serious fiscal deficit one day, there will be no direct impact on members’ accumulated MPF balances.

Base on the above, we cannot solely rely on the public retirement protection, instead we should plan for our retirement life at an early age, so that we can enjoy our old age.

Make good use of the MPF and enjoy financial independence

The transparency and predictability of the MPF system are better than that of the Government’s retirement protection system. Members can keep track of their retirement savings and make their own investment decisions, or even make additional contributions on a voluntary basis. Members therefore have better control of their post-retirement living standards.

Hong Kong’s current social security system is a safety net system providing a low level of basic financial support. The objective of the social security system is different from that of the MPF. The MPF system allows members to accumulate retirement savings from a young age, both mandatory and voluntary, and to have autonomy over the way they run their own personal saving arrangements. This is beneficial at both individual and society level.

Members should also make appropriate decision to enhance their investment return, and investment return should be at least above inflation to ensure an adequate lump sum at retirement. Members are also encouraged to continue invest their accumulated benefits after retirement to prevent their saving being eroded by inflation. These are some possible actions to combat the impact of population aging on retirement protection.

This article in English and Chinese is available for download.

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Head of Retirement, Hong Kong & Macau

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