There needs to be a systemic change in the MPF program in Hong Kong and bring back liquidity to the property market and boosting home ownership.
Why the HKSAR Government Should Relax MPF Rules for Property Purchase
The Mandatory Provident Fund (MPF) scheme, introduced by the Hong Kong Special Administrative Region (HKSAR) Government, was designed with the noble intention of ensuring that the working population saves for retirement. However, the performance of the MPF has been under scrutiny, with recent years showing less than stellar returns. In 2022, Hong Kong workers experienced a significant loss of 15.6% on average in their retirement savings due to poor MPF performance, with China & greater China equity funds posting the worst performance[8]. This trend of underperformance raises questions about the efficacy of the MPF as a mandatory retirement savings scheme.
On March 9th, 2024, the topic of how bad our MPF has been underperforming as a promise to happy retirement is being discussed again. Link here
https://www.scmp.com/comment/opinion/article/3254559/whats-point-mandatory-pension-offers-no-financial-security
On Oct 2023, SCMP has a post titled “Hong Kong’s MPF poised for unprecedented third year of losses after last quarter wipes all 2023 gains” Link here
https://www.scmp.com/business/banking-finance/article/3236815/hong-kongs-mpf-poised-unprecedented-third-year-losses-after-last-quarter-wipes-all-2023-gains
A letter to editor at SCMP has already spoken about this in great detail. Link here https://www.scmp.com/comment/letters/article/3177352/abolish-mpf-and-bring-universal-basic-income-hong-kong
Given the current economic climate and the pressing need for housing in Hong Kong, it’s worth considering a relaxation of MPF rules to allow for the withdrawal of funds for property purchases. Here are several arguments supporting this proposition:
1. Underperformance of MPF Investments
The MPF’s recent performance has been disappointing, with significant losses in 2022 and only a modest recovery in 2023[5][8]. This underperformance not only affects the potential retirement savings of Hong Kong’s working population but also diminishes confidence in the MPF as an effective tool for financial security in retirement. Allowing MPF funds to be used for property purchases could provide an alternative investment route that may offer better returns and more tangible assets for MPF members.
2. Housing Affordability Crisis
Hong Kong is notorious for its high property prices and the difficulty residents face in affording their own homes. By allowing MPF funds to be used for property purchases, the government could provide a much-needed boost to individuals and families striving to own a home (gaining back the liquidity and hard earned savings) to acquire a home. This could also serve as a direct investment into the local economy, potentially stabilizing or even driving up property values in the long term.
3. Enhanced Financial Flexibility
The current rigid structure of the MPF limits how individuals can manage their own retirement savings. Providing the option to use MPF funds for property purchases would grant individuals greater control over their financial planning, allowing them to make decisions that best suit their personal circumstances and long-term goals[6].
4. Potential for Better Long-term Returns
Real estate has historically been a solid investment, often providing better long-term returns than stocks or bonds, especially in a volatile market. Allowing individuals to invest their MPF contributions in property could not only help with the immediate need for housing but also serve as a more stable and profitable investment for retirement[6].
5. Addressing Public Sentiment
There is a growing sentiment among the public that the MPF system needs reform. The scheme’s high management fees and underwhelming performance have led to calls for more flexibility in how MPF funds can be used[6]. Relaxing MPF rules to allow for property purchases could be a step towards addressing these concerns, potentially increasing public satisfaction and trust in the government’s handling of retirement savings.
Conclusion
While the MPF scheme was established with the laudable goal of ensuring retirement security for Hong Kong’s workforce, its recent performance has left much to be desired. Given the pressing housing affordability crisis and the desire for greater financial flexibility, it is worth considering a relaxation of MPF rules to allow for the withdrawal of funds for property purchases. Such a move could provide immediate relief to those struggling to afford a home, offer potentially better long-term returns, and restore public confidence in the MPF system. It’s time for the HKSAR Government to reevaluate the MPF’s rigid structure and explore more versatile options for its citizens’ retirement savings.
Citations:
[1] https://www.csb.gov.hk/english/admin/retirement/122.html
[2] https://mfp.mpfa.org.hk/eng/mpp_index.jsp
[3] https://www.fhlbmpf.com/about-us/news/details/2021/06/21/mpf-announcement-2021-45
[4] https://www.policyaddress.gov.hk/2023/public/pdf/measure/measure-full_en.pdf
[5] https://www.scmp.com/business/article/3247185/hong-kongs-mpf-bounces-back-35-annual-gain-first-2020-pension-scheme-adds-us48-billion-value
[6] https://www.info.gov.hk/gia/general/201711/29/P2017112900551.htm
[7] https://www.info.gov.hk/gia/general/202212/29/P2022122900035.htm
[8] https://www.morningstar.hk/hk/news/230954/best-and-worst-performing-mpfs-in-2022.aspx
[9] https://www.fhlbc.com/news/details/2021/06/22/mpf-xtra-ineligibility-of-loans-secured-by-investment-properties-and-second-homes
[10] https://www.hkma.gov.hk/media/eng/doc/about-the-hkma/legislative-council-issues/20010503e1b.pdf
[11] https://hkifa.org.hk/mpf/
[12] https://www.mpfa.org.hk/en/-/media/files/supervision/mpf-intermediaries/registration-requirements/study_notes_9th_eng_v3.pdf
[13] https://www.labour.gov.hk/eng/news/aoa.htm
[14] https://www.gumhk.com/en-HK/mpf
[15] https://www.fhlbmpf.com/docs/default-source/mpf-xtra-selling-guide/mpf-xtra-selling-guide.pdf?sfvrsn=a037f6f5_36&sfvrsn=a037f6f5_36
[16] https://www.budget.gov.hk/2022/eng/pdf/e_budget_speech_2022-23.pdf
[17] https://www.sunlife.com.hk/en/investments/mpf-orso-fund-prices-performance/mpf-fund-prices-performance/
[18] https://www.csb.gov.hk/english/admin/retirement/124.html
[19] https://www.chinadailyhk.com/article/369991
[20] https://www.commissiononpoverty.gov.hk/eng/pdf/Final%20Report_Eng_Full.pdf