The truth behind your retirement plans revealed

Hong Kong life expectancy, for both sexes, has steadily increased over the last 41 years. Male life expectancy increased from 67.8 to 80.7 years between 1971 and 2012.

Over the same period, female life expectancy has also increased from 75.3 to 86.4 years ^[1].

It is expected that life expectancy in Hong Kong will overtake Japan by 2045. A report commissioned by the Minister of Health in Japan shows that Japanese women, who the longest life expectancy of all countries for the last 26 years, are being superseded by those in Hong Kong.

It’s an easy calculation. If we plan to retire at 65, most of us will spend more than 20 years in retirement; this is steadily increasing.

The World Bank has suggested two mandatory pillars and one voluntary pillar for pensions, which underline the retirement savings gap we face in Hong Kong. Old Age Living Allowance only provides income unconditionally for people aged over 70.

This makes the first mandatory pillar.

The second mandatory pillar refers to the Mandatory Provident Fund Schemes Authority (MPFA) that launched in December 2000, and has become popular among Hong Kong employees. With the MPF System in place, around 87 percent ^[2] of the total employed population is now covered under MPF schemes, ORSO schemes, statutory pensions or provident funds.

In the second edition of the Friends Provident International Investor Attitudes Survey, conducted earlier this year, high net worth individuals^[3] in Hong Kong and Singapore were asked how they feel about the amount of savings they have accumulated in their mandatory MPF scheme. The research showed that 59 percent of respondents do not believe they are saving enough for their retirement through the MPF.

Furthermore, 60 percent of those respondents said they were considering increasing their savings by more than 40 percent to fill their retirement savings gap. The majority believe that MPF will only provide a very small proportion of the income they will need in retirement.

The message is loud and clear - no one should rely solely on MPF. But how many people realise they need to take action now to narrow the retirement savings gap?

This is where the voluntary pension pillar suggested by the World Bank comes into play. Where the MPF is insufficient to meet retirement income requirements, people need to take personal responsibility to close the retirement savings gap to secure a comfortable retirement.

Surprisingly, while most Investor Attitudes respondents realise they need to save more for their retirement, very few know how to calculate the actual amount they need to save. Alarmingly, 42 percent of respondents said they were relying on guesswork alone to calculate the amount required.

The Friends Provident International Investor Attitudes Report examined respondents’ retirement strategies, and found that Hong Kong investors were not as confident about their retirement savings as their Singapore counterparts. Just 37 percent of Hong Kong respondents were positive the amount they are saving is sufficient, compared with 57 percent of Singapore respondents.

Some people seem to be under the illusion that retirement costs may reduce, but they may be overlooking the effect of inflation, which will could erode their retirement savings and mean that they will be able to buy less with their money than they can today.

In conclusion, while most people know they should save for their retirement, very few know how much will be sufficient.

It is never too early to start planning for retirement, and the earlier you start to make suitable provision, the less it is likely to cost in the long term. Now is a good time to seek professional advice on how to build an adequate retirement fund.

[1]Center for Health Protection – Department of Health, the government of the HKSAR as at 23 September 2013 https://www.chp.gov.hk/en/data/4/10/27/111.html

[2]Tower Watson: How effective do you think the MPF is as preparing people financially for retirement? As at 4 May 2011https://mpf.hk/blog/post/2011/05/04/adequacy-of-mpf-contributions.aspx

[3]For the Friends Provident International Investor Attitudes Report, ‘High Net worth Individuals’ are defined as locals and expats in Hong Kong who have at least HKD 500,000 of investible assets, personal savings and investments