Hong Kong's Mandatory Provident Fund (MPF) is a retirement protection scheme started in 2000. While the MPF may prove relatively sufficient to middle- and high-income households, its potential to generate sufficient accrued benefits for retirement until average life expectancy of 80 does not cover at least 30% of Hong Kong people.

1. MANDATORY PROVIDENT FUND
CASE SIMULATION FOR RETIREMENT SUFFICIENCY
Lu Yanyuan | Leung Kayan | Mark Raygan Garcia

2. A Look Forward
Goal
Determine “sufficiency” of MPF contributions for
retirement by age 65 years old
Qualifying ‘Sufficiency’
Analysis determines total amount of contributions
made in two cases (low-income household; high-
income household)
Simulates monthly contributions and monthly
expenses per case; and calculates potential
savings plus total MPF contributions by 65 years
old
Forecasts expenses by retirement age until average
life expectancy of 80 years old and assesses the
same against potential savings plus MPF resources
from 65 years old

3. Hong Kong in Focus
Aging Population
Year 2009: population aged
over 65 was 0.88 million,
(13% of the total
population)
Bureau of Statistics: elderly
population will increase to
2.38 million by 2039 (28%
of the total population)
Source: Hong Kong Census and Statistics Department

4. Hong Kong in Focus
Dependency Ratio
Year 2009: 1,000 individuals supporting every 180 elderly
Year 2039: 1,000 individuals supporting every 464 (2 adults to 1 elderly)
Source: Hong Kong Census and Statistics Department

5. Hong Kong in Focus
Income Inequality
Hong Kong is “Pearl of the
Orient”, one of the world’s
economic hubs and
international financial centers
But:
Economy is getting worse;
competitiveness rankings
beginning to fall
Social wealth distribution
and concentration is
becoming increasingly
unfair
Latest data: Top 10 wealthy
assets of GDP over 35%
Data from the Census and Statistics Department of the Hong Kong
Special Administrative Region (HKSAR) show that the Gini coefficient of
wealth distribution was up 25% from 0.43 to 0.537 between 1971 and
2011. In fact, the Hong Kong Gini coefficient is still higher than 0.5 in
2016.

6. Hong Kong in Focus
Retirement Protection Principles
Self-sufficient persons are
competent; the role of
government is to support
the elderly who cannot
help themselves
On-the-job people plan
their own retirement with
their family members
through MPF Mandatory
contributions, voluntary
savings or retirement
investments. ●
The government uses
taxes to reallocate wealth.

7. What is MPF?
A privately managed, employment-based retirement protection scheme aimed
at helping Hong Kong employees generate resources to support their
retirement.
Only 1/3 of workforce
had retirement
protection
August 1995
Enactment of Mandatory Provident
Fund Schemes Ordinance
September 1999
Establishment of the Mandatory
Provident Fund Schemes Authority
December 2000
Implementation of the Mandatory
Provident Fund System
85% of workforce has
retirement protection
Before After
Is MPF enough?

8. MPF: How to avail?
Coverage: all employees and self-employed
persons ages 18 to 64
Monthly Contribution/Counterpart: employee
and employer (employee: 5% of income;
employer: 5% of employee’s income)
Subject to a maximum income level for
contribution purposes of $30,000/month or
$1,000 per day
For self-employed with a monthly income
above $7,100, contribution of 5% of income
Benefits accrued can only be used at age 65,
or under the following conditions: early
retirement at 60, permanent departure from HK,
total incapacity, terminal illness, small balance
of $5,000 or less, or death
Portability: If switching jobs, accrued benefits
can be transferred to new employer’s MPF
scheme

9. MPF: Who are exempted?
Those Covered by statutory
pension (i.e. civil servants, judicial
officers, teachers in subsidized
schools)
Members of occupational
retirement schemes regularizer
under ORSO
Foreigners entering HK for
employment for no more than 13
moths or are members of
retirement schemes outside HK
Domestic helpers & self-employed
hawkers

10. MPF: How are
contributions protected?
Capital adequacy requirement -
ensures MPF trustee’s financial
resources enough to compensate
losses
Professional indemnity insurance -
compensation mechanism against
losses due to breaches by trustee
Compensation Fund - when
insurance mechanism fails,
members can file for claims under
MPFSO
Losses due to market fluctuations
not included.

11. Simulating Retirement:
Is MPF Enough?
Is MPF enough to shoulder
expenses during retirement?
How much in MPF
contributions can low-income
and high-income households
generate until the retirement
age of 65?
Up to what age can your MPF
contributions be enough to
support you during
retirement?
Guide Questions Variables Case 1 Case 2
Household
Income
Low High
Monthly
Expenses
Tax Bracket
Savings
Potential
Projected Debt

12. Simulating Retirement:
Case Profiling (Ke Family)
Age Both 25
Professions
Husband: Salesman
| Wife: Office
Assistant
Child 1 (primary school)
Housing Government

13. Simulating Retirement:
Case Profiling (Liu Family)
Age Both 25
Professions
Husband: Nurse |
Wife: Doctor
Child 1 (primary school)
Housing Private / High-end

14. Simulating Retirement:
Comparative Monthly Combined Expense Projections Pre-Retirement
Expense Ke Family Liu Family
Household Income 27,000 146,000
Combined MPF Contribution 1,350 (550 + 800) 3,000 (1,500 + 1,500)
Housing / Rent 1,000 20,000
Food 10,800 (40% of income) 33,580 (23% of income)
Child’s Tuition Free 100,000 / year (10,000/month)
Utilities 3,000 5,000
Transport 1,800 4,000
Domestic Helper 0 4,500
Housing Maintenance 0 3,000
Parking Fee 0 7,000 (3,500 x 2)
Total Expenses 17,950 90,080
Disposable Income’ / Net of
Expenses
9,050 55,920

15. Simulating Retirement:
Comparative Monthly Combined Expense Projections by Retirement
Expense Ke Family Liu Family
Housing / Rent 1,000 0
Food 7,500 12,400
Utilities 3,000 5,000
Transport 1,200 2,800
Domestic Helper 0 4,500
Housing Maintenance 0 3,000
Parking Fee 0 3,500
Medicines 600 600
Medical Checkup 0 50
Total Expenses 13,300 31,850

16. Simulating Retirement:
Comparative Projected MPF Accrued Benefits
Assumptions: Expected annual MPF contribution return @ 4% | Inflation rate at 3.2%
Mr Ke
Mrs Ke
Combined MPF accrued benefits: $6,179,220
Mr Liu
Mrs Liu
Combined MPF accrued benefits: $11,319.172

17. Simulating Retirement:
Comparative Projected Combined Retirement Needs
Assumptions: Expected rate of return @ 4% | Inflation rate at 2.5%
Ke Couple
Liu Couple

18. Simulating Retirement:
Comparative Projected Accrued MPF Benefits against
Projected Retirement Needs
Expense Ke Couple Liu Couple
Projected (Joint) Accrued MPF
Benefits at 65
6,179,220 11,319.172
Projected (Joint) Retirement
Needs at 65
5,818,117.87 13,932,861.20
Surplus / Deficiency 361,102.13 (2,613,689.20)
Assumptions
• No additional child
• University tuition of child
on loan payable during
work
• Availment of government
medical healthcare
benefits
• House owned before
retirement
• No additional child
• One car given up
• Savings not factored in

19. Findings & Conclusion
Ke family represents 7% only of HK
household income (25,000-29,999);
majority fall below it; Liu family
represents 4.7%
MPF proves insufficient when the
household income is lower than the Ke’s;
this becomes worse when: (a) the family
has more children, (b) takes part in family
transfers (outward), (c) and goes for
higher-cost options for basic necessities
Unless effective savings and investment
schemes, and inward private/family
transfers are in place, middle class,
average-size families may experience
difficulty preparing for retirement (given
inflation and fluctuating/low ROIs).