weekly
Writer: Special writer
2020-12-01 20:14
Last update date: 2020-12-01 20:14
To the Hong Kong Special Administrative Region Government
Chief Executive
Ms. Carrie Lam:
You have served as the chairman of the Poverty Alleviation Committee and led the committee to conduct in-depth consultation on retirement protection issues.
I believe you are very familiar with the MPF as the only contribution retirement protection system for Hong Kong employees.
The MPF system has been in for 20 years. In the face of an aging population and system failure, the government has to step up its efforts to reform. I hereby issue an open letter to elaborate on my observations and suggestions.
Today is the 20th anniversary of the establishment of the MPF. All citizens have become accustomed to making contributions, and various administrative departments and court agencies have confirmed that MPF is an important document for proving income and employment relationship, compared to other social systems and civic obligations , MPF is more extensive.
But the MPF is not a popular system.
When it comes to Hong Kong’s policy failures and market imbalances, nothing is better than compulsory contributions from the public, allowing financial institutions to eat their profits, setting no returns and charging standards, no cancellation of hedging, no review of effectiveness, and no help to the poverty alleviation MPF system.
In March 2011, the then Secretary for Finance and Economics, Dr. Chen Jiaqiang, spoke in the Legislative Council. It was estimated that wage earners with a monthly income of 10,000 yuan would receive 780,000 yuan in 20 years!
But the truth is that according to the statistical analysis of accrued benefits for 2019 released by the MPFA in September this year, a total of 90,000 employees have made uninterrupted contributions in the past 19 years, and on average they can only accumulate about 420,000 yuan, which is only half of expectations. It can be seen that the effectiveness of private MPF is obviously overestimated.
At present, the ageing population of Hong Kong is accelerating. If there is no operation on the MPF and retirement protection, "strong governance and governance" will eventually become a joke.
Today is the 20th anniversary of the establishment of the MPF. The government has the responsibility to thoroughly review, reform and upgrade the MPF system, so as to implement a retirement protection system!
The MPF system has entered two decades.
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Problem 1: The return is not worth keeping, and the retirement life is out of budget (lack of guarantee)
The lack of a guaranteed reasonable return mechanism for MPF is the fundamental flaw of private MPF.
According to a survey conducted by the Federation of Trade Unions with more than 6,000 workers, "not catching up with inflation" is the main reason for the general public's dissatisfaction with the MPF, and people who lack investment experience even feel that it is "strong loss of money".
Looking back at the review of the MPF legislation in the past, the labor sector has already requested value preservation measures. Therefore, the government has introduced two types of "guaranteed funds" and "guaranteed funds". The two types of funds do not guarantee that growth can catch up with inflation.
As for other higher-risk funds, there is no guarantee nature.
In 2015, the government launched the "Core Fund" default investment strategy, which only cares about fees and returns. At that time, I proposed an amendment bill in the Legislative Council to require the establishment of a mechanism to guarantee returns and inflation. Unfortunately, it was not passed by the Legislative Council.
Guaranteeing reasonable returns is the foundation of social trust in the compulsory contribution system, and it is also the expectation of a wide range of wage-earners who need protection most day and night.
For example, the government’s fiscal reserves invested in the Monetary Authority guarantees a 5% interest guarantee, while the funded school teachers’ provident fund coordinated by the Education Bureau also guarantees an annual interest of over 5%.
Even at the beginning of the establishment of the MPF, the accountability director assumed that the city residents' MPF received a 5% return each year.
Why the reality is that the MPFA cannot find actual data to prove how many employees get a 5% return.
In order to strengthen the public's confidence in the system and the government, reduce public worries about retirement life, and encourage increased contributions, the MPF has established a guarantee mechanism to ensure that it beats inflation.
Problem 2: Retirement protection is meager (insufficient protection)
The World Bank’s 2016 evaluation of pension systems in various places clearly pointed out that the problem of Hong Kong’s MPF is inadequacy. Assuming that equity growth is equivalent to inflation, the income contribution level of 10% can only be equal to 48 contributions for 40 years. Monthly salary, assuming that the income replacement ratio is 40% of the medium level, it can only reach 120 months (ten years). However, because the MPF defines the nature of contributions and has no redistribution function, the situation for low-income earners is very difficult .
According to the figures of the MPFA in December 2019, there are only 90,000 member accounts with continuous uninterrupted contributions for 20 years, with an average equity of 423,000 yuan. Assuming immediate retirement, monthly expenses of $3,500 for ten years have been exhausted!
At present, there are more than 4 million MPF account members (including employees/self-employed persons), and each member has an average of only 217,000 MPF accounts, while there are only 1.41 million MPF accounts that have accumulated more than 200,000 yuan or more; Therefore, it is estimated that 60% of the members have less than 200,000 MPF!
Insufficient retirement protection!
Australia under the same private management model is planning to gradually increase the contribution rate from 9.5% to 12.5% (unilateral employer contributions), but the Hong Kong MPF contribution limit will remain unchanged for ten years.
In fact, it is the lack of guarantees of MPF returns and the lack of supervision of operations that make the public lose confidence and oppose the increase in MPF contributions.
Question 3: Hedging completely destroys the MPF system (system loopholes)
Severance payment and long service payment offsetting the MPF employer's contribution rights (hedging) are the most serious loopholes that violate the original intent of the MPF system. This is the compromise result of the government lobbying the business community to agree to the creation of MPF.
The severance payment is 67% of the monthly salary per year, while the MPF employer’s contribution is only 60% of the monthly salary each year. The severance payment completely offsets half of the MPF.
The total number of hedged MPF funds from 2015 to 2019 exceeded 20 billion. In 2020, the economy will continue to deteriorate and corporate layoffs will continue. It is estimated that the hedged amount will exceed 6 billion in 2020, accounting for 10% of the net MPF contributions in a year, or withdrawing rights Twenty percent.
If the hedging problem is not resolved, the MPF has only become a tool for employers to save money. Employees are even more lacking in incentives to manage their MPF. Some employees even voluntarily ask the employer to sever in order to obtain emergency money. The hedging mechanism distorts the retreat. Keeping the original intention, the retirement protection of employees who have undergone hedging has been given a big discount.
Question 4: Facilitating employers violates economic trends (design out of touch)
Hong Kong pursues capitalism and small government operations, coupled with the rapid development of information technology.
As a result, work is fragmented and networked, short-term contracts and the more-pay-for-more piece-work system prevail. Therefore, the employment relationship is becoming less and less strong. Excluding civil servants, some public organizations, the Hospital Authority and aided schools, the enterprise position is life-long. It can be said that people talk about dreams and care about reality (to continue, only 90,000 people have been employed by a single employer in the past two decades). It is common for wage earners to change jobs frequently or hold multiple jobs.
However, the design of the MPF is to facilitate employers. The plan is chosen by the employer instead of the account with the employee. This leads to multiple accounts for one person, which is difficult to manage and bring benefits. It is not easy for employees to receive statements from multiple trustees a year. Palm MPF status.
At present, there are more than 10 million accounts opened under the MPF system. On average, each member has about 2.5 accounts. Among them, 36% have account balances of less than 10,000 yuan!
It is conceivable that the management efficiency is extremely low!
The design of the MPF is to facilitate employers. The employer chooses the plan instead of keeping the account with the employee. As a result, one person has multiple accounts, which is difficult to manage and achieve efficiency.
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Problem 5: The design of market supervision has failed, and financial institutions have suffered serious profits (market failure)
Private operation assumes that through the rational choice of payers, operators are encouraged to compete to improve performance, which is mainly reflected in fees (cost control), returns, transparency and service attitudes.
However, the design of the MPF system has only allowed financial institutions to profit from it. This is an example of market failure.
This year, it is estimated that financial institutions have received 14.5 billion from the MPF (1,000 billion / 1.45% expenditure ratio)!
Ten years ago, the expenditure was 7 to 8 billion yuan. The tide rose, and the MPF earning agencies charged fees according to their fees. It is really profitable and underperformance, and the government is unable to urge it!
First of all, forcing employees to participate in the calculation of contributions is no longer a free will. In addition, in the face of complex investment choices, it is not affordable for the public at all, even journalists with university degrees do not understand the content.
Secondly, it is even more ironic that the choice of trustee is actually the employer, but the employer has no incentive to supervise the trustee’s performance and services. Whether the trustee is sincere and responsible to provide the best service to the employees is simply unknown and no one can care.
The key point is that the MPFA and the government will never assume the responsibility of supervising the trustee group on behalf of employees’ interests. The MPFA’s board of directors only gathers "stakeholders." The government does not ask about fees and performance, but only trusts the market. Accountability.
For example, most of the trustees currently entrust the administrative management and investment work to their sister companies in the same group, and the group parent company of the trustee is exactly the recommender/sponsor (sponsor) under the MPF system, that is, the group The main brain is responsible for setting fund fees, fund planning and packaging promotion. The MPFA has no right to inquire about the functions and fees of these recommenders in accordance with the law!
As early as 2012, the MPFA's research report pointed to the problem, but it was not resolved.
In addition, the trustees will not publish their operating information and profit and loss details. There is no public person on the board of directors. Who is the trustee who claims to represent the interests of employees?
Institutional structure issues, regulatory agencies are misplaced.
Take the Hong Kong Teachers Provident Fund and the Tracker Fund as examples. These two funds set up committees. The former is based on teachers and the latter is based on independent experts. The committee selects investment institutions and administrative agencies based on cost and performance, so it is cheaper and more expensive.
This example is exposing the issue of the MPF framework.
And countries that pursue private MPF systems, such as Mexico and Chile, will regulate the operator’s fees. For example, the Mexican government has the right to approve and veto the operator’s fee budget for the coming year!
But Hong Kong has misplaced supervision.
And blindly believing in the operation of the market and believing in business elites is precisely one of the root causes of the failure of the SAR government's governance. MPF is an example!
Problem 6: The information is too much and the key information is not transparent (information out of focus)
There are more than 400 MPF funds, which is confusing. Although the MPFA has greatly improved transparency and user-friendliness, it has established a transparent online fund information platform. Ironically, the information on employees’ personal accounts is not ideal.
The trustee will issue an MPF member report to employees every year (one to four times), but the report does not show the actual fee or expenditure rate of the member’s account, nor does it show the rate of return and overall rate of return. The trustee’s report can Lack of key information!
On average, employees have 2 to 3 MPF accounts. It is conceivable that there is too much information but not enough, and the key information is out of focus.
Sadly, the information out of focus has not improved for many years.
There are more than 400 MPF funds to choose from.
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Question 7: Lump sum extraction, high moral hazard (moral hazard)
The MPF is a defined contribution plan, not a social insurance. The method of withdrawal of rights and interests is a lump sum payment.
Although the law allows for instalments, most employees decide to withdraw the entire MPF as soon as possible.
However, the lump-sum MPF amount often involves hundreds of thousands of dollars, and there are obvious moral hazards, including poor financial management, wrong investment, loose consumption, or use for children’s family members to get married and buy property. The lump-sum withdrawal fails to accurately meet retirement Purpose needed for life to continue.
Problem 8: The cost is high and the standard is not met (high fees)
In 2016, the MPFA conducted an overall trend study on fund expenditures/charges to reveal the problem of market imbalances. Through comprehensive scientific investigations, several conclusions were reached, including:
1. High fund fees does not mean good returns. On the contrary, many low-fee funds have better returns than funds. Therefore, the fees are expensive but the performance is poor.
2. Funds with large assets still charge high fees, often far higher than new funds with small assets. The MPF has not exerted its scale effect at all to lower its fees!
3. The fees of newly approved funds are often lower than those of older funds. In particular, trustees launch low-fee funds (often passively tracking index funds) based on public opinion pressure. Unfortunately, such funds are often small in size and have participants less.
It can be seen from the above that the trustee will not take the initiative to reduce fees, the market law is imbalanced, and the large scale of assets can only represent popularity, but it does not mean price and quality.
Low-fee funds directly harm the interests of the trustee, and the trustee is selected by the employer, and the management ability of the employees is generally insufficient. The trustee and the fund company take the MPF fees and carry them, and the fees are high but there is no standard!
Of course, in fact, there is a standard, the profit and loss of the fund will be charged in proportion to the fund's assets, which is absolutely unambiguous.
Tang Jiabiao, a labor representative of the LAB and the Director-General of Kowloon East of the Federation of Trade Unions, hopes to implement the abolition of the MPF hedging agency as soon as possible.
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Problem 9: Single and backward functions, difficult to connect and develop (features are thin)
The MPF has a single function, which only involves the collection and payment functions of MPF contributions and the investment therein.
Whether this huge payment system is compatible with other insurance items, such as accident insurance, life insurance, medical and labor insurance, or whether it can be converted into an annuity plan, has not been investigated.
In addition, the MPF system is a recognizable employment relationship certificate and income certificate (such as court confirmation). Can the MPF be connected to the application of various government welfare programs, such as on-the-job allowance or student allowance, so that basic families Whether it is possible to directly and automatically obtain related living allowances, poverty alleviation is more in place and simple.
The MPF can also be transformed into Hong Kong citizens participating in or voluntarily purchasing the mainland social security system, such as pension and medical care, to promote the integrated development of the Greater Bay Area.
Regrettably, Hong Kong’s MPF has a single function, and the SAR government and the industry have not planned to develop, and it has failed to keep up with the trend of electronic and regionalization.
Problem 10: Data is difficult to use for scientific research (research is weak)
The benefit of the publicly-operated universal contribution system is that it allows the government to grasp the real data and the status of the labor market, including the salary distribution and level of employees of different ages, genders, and industries, and even understand the status of social unemployment and reemployment, the size of the enterprise, and The labor cost, through big data analysis, is more conducive to scientifically formulating social service and economic development policies. At the same time, it has practical benefits for the government to improve tax assessment and welfare assistance.
Unfortunately, the MPF is a decentralized private management, and the MPFA can often only require the trustee to submit information related to MPF services in accordance with the law, which is limited in use and time-consuming, and wastes scientific research on socio-economic conditions. Good tool.
To explain more specifically, the data available to the current MPF system is simply not enough to comprehensively and objectively examine the effectiveness of MPF, such as whether low-income people will be based on their economic status and lower ability, and will be in the return of MPF ( I don't know how to choose). Another example is for employees who have a stable employment relationship. Is the cumulative effect of MPF far better than those whose relationships are unstable?
With regard to the ten major issues mentioned above, I make the following seven suggestions:
1. Implement the cancellation of the MPF hedging agency as soon as possible. Based on the consensus of labor and management, the crossed method can be used to cancel the hedging and short-term government funding so that employers can afford the relevant plan;
2. Centralized processing of the administrative work and data of the MPF, and handed over to the SAR government to select cost-effective administrative agencies through the bidding process, and solve the obstacles to data acquisition together;
3. Entrust a public company under the Monetary Authority: The Mortgage Securities Co., Ltd. will become the trustee, and provide fund returns with guaranteed run and inflation levels, and the public will activate the private;
4. Implement MPF to follow employees, employee-oriented coordinating account management, early implementation of MPF free exercise
5. The government becomes the supervisor of the trustee, including standardizing the format of the MPF employee account report, and having the right to approve fees, imitating the Mexican model, requiring the trustee to submit an application for the next year's fee budget, which will be approved by the government to control expenditure growth, or Introduce a real market mechanism of performance-based fees, and also solve the problem of high fees for recommenders without royal control. The transparency of trustee governance is also a key reform, including the introduction of public or employee representatives, and becoming independent directors of trustees. Disclosing the trustee’s annual financial status;
6. With the implementation of the above measures, the MPF will increase the contribution ratio and increase the contribution ceiling, and implement the government's measures to provide MPF for low-paid employees as soon as possible;
7. Research and promote the enhancement of MPF functions, including combining annuity insurance contributions and benefits, compatible with other personal insurance payments and the Greater Bay Area social security system, and linking up with various government poverty alleviation subsidy programs.
Labor Advisory Committee Labor Representative
Sincerely, Deng Jiabiao
December 1, 2020
Tang Jiabiao Lam Cheng Yuet-ngor MPF Retirement Protection Federation of Trade Unions Retirement System Labor Protection
