Someone’s helping themselves to your retirement savings, that’s all

The Business and Professionals Federation of Hong Kong, a more-than-averagely sleep-inducing think tank, urges the government to let people use part of their Mandatory Provident Fund retirement savings for home purchase during their working life. The group adds that Singapore allows it, which may or may not impress us deeply.

As things currently stand, the proposal has a flaw: thanks to former Chief Executive Donald Tsang we have a deliberately engineered artificial shortage of housing for sale. Any financial inducement or assistance to purchase residential property will simply be used to further bid up the prices of the inadequate supply of available apartments. The same also applies to tax allowances for mortgage interest payments and suggested government subsidies for young first-time buyers: the extra cash just goes into the sellers’ pockets, which in effect means the property developers.

Former Chief Secretary, elder statesman and BPFHK boss Sir David Akers-Jones is no friend of our local real estate tycoons (unlike one of his successors, Rafael Hui). So we can rest assured this is not some lame scam but a well-intentioned proposal. (The property moguls have their own think tank, the rather out-of-favour Bauhinia Foundation, which essentially backed nice-but-dim rich-kid Henry Tang for Chief Executive. Akers-Jones of course supported CY Leung.)

Given improved supply of housing – or simply a collapse in prices given that we have 200,000 or whatever units empty – the BPFHK’s idea looks fair enough. And why stop at housing? Maybe people could withdraw MPF money for health costs (also allowed in Singapore) or to help their kids out with college tuition, or repay their own student loans.

Or – and here’s a radical idea – maybe we could allow people to withdraw MPF funds and put the money into savings for their retirement. To which many people will reply: isn’t that the whole purpose of the compulsory MPF system in the first place? And we all know the answer to that.

As people in Hong Kong are becoming increasingly aware, the MPF has proved a rip-off. A letter in the South China Morning Post recently complained that the writer’s total MPF savings (presumably allocated in ‘safe’ fixed-income funds) were actually less after some 10 years than the total payments into the system. The writer would have more for her retirement had she stuffed the cash under her mattress.

When the system started, the financial companies running MPF services justified their fees by (among other things) pointing out that start-up costs were high. Mr Webb in 2007 calculated that fees at that time meant that over several decades you might get back only half the contributions-plus-returns you should have a right to expect. That’s right: 50 cents in the dollar. More recently, some service providers have been moving towards lower-cost structures. But the basic principle still applies: the MPF isn’t helping people save for retirement – it’s making it harder.

For the better-off, the MPF account is a bit of left-overs in a far-off corner of the portfolio. But for people on average incomes, a big chunk of their savings is being pocketed by someone else. Where are the hundreds of thousands of workers marching on the street in angry protest?

Maybe the BPFHK’s suggestion will wake people up a bit. ‘Aging ex-civil servant accidentally starts mass rioting; hundreds of fund managers reported hanging from lamp-posts’.

Which brings us very neatly to a fine opportunity to plug the signed, limited-edition-but-still-available print Sir David Akers-Jones Psychedelic Freak Out, now seen on one or two more-eccentric businesses’ office walls. And yes, of course, you are allowed to withdraw funds from your MPF account to buy them.

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19 Responses to Someone’s helping themselves to your retirement savings, that’s all

  1. Lois Beluga says:

    Poor Akers. They drove a motorway through his bought-for-a-song colonial estate and he has been whinging ever since, having actually to pay rent or buy a property on the local market, something no senior civil servant has had to do for a hundred years. I bet he even has to use supermarkets and buses now. The indignity of it all.

    No, the purpose of buying property through the ages has been to be the richest man in the graveyard and leave it all to your useless relatives, or even worse, your wife.

    This is Chinese tradition too and part of culture so is sacrosanct. Shut up in other words.

    The purpose of pensions is to have something there for nursing homes to grab. The less they have to grab the better, so what’s the problem with the MPF? And the role of pension funds is to give extra money for employers and banks to play with and invest in dodgy regimes all over the world.

    Come on. Will these socialist revolutionary liberal gay lesbian bulimic anarchists have their way with everything. No, I say.

    David Aching Bones is 98.

  2. Failed Alchemist says:

    Again hail to the chief. Sir Bow-Tie, the first & last Chinese governor of HK deserves credit for the magnanimous MPF scheme. After so much ground work and 12 years of implimentation, we hear.. “we should emulate Singapore” by allowing withdrawals for home purchases. We wished we would have been on the free flights and enjoyed the nice hotel digs to “study” Singapore’s & Malaysia’s pension schemes before handing it over the big boys of Lychee´s big sweet lap. (well, if we missed out of the Latin American suites thingy, Singapore’s Raffles who have suffice).

    But wait, before we jump on CX, actually we could have just googled and saw what those blighties were doing on the red dot.

    But alas, the saddest news today is a high proportion of young people, fresh grads or even, not graduated yet are allocated public housing while the middle age sods with their children still languish in the Big Lychee’s under belly.

    And we thought Hong Kong was smart and ahead of the rest.

  3. Walter De Havilland says:

    Pray tell. Was it not David Aching Bones who mentored the Heung Yee Kok and assisted in making them a force in Hong Kong Politics. He gave us the small house policy that has blighted the NT, and his role in re-zoning land use on Lantau for the Discovery Bay project created some mirth a few years ago when he claimed the re-zoning was done to stop the Soviet Union getting a foothold in Hong Kong! Check out the sub-standard report at the time.

    http://www.thestandard.com.hk/news_detail.asp?pp_cat=&art_id=1369&sid=&con_type=1&d_str=20050113&sear_year=2005

  4. Vile says:

    Isn’t Aching Bones affiliated with Hysan or one of that lot?

  5. Stephen says:

    Any proposal to get my cash out of this venal scheme would be welcomed by me and I suspect by the community at large. Why it has taken 12 painful years for HK to wake up to it is, as you have pointed out, to the usual vocal middle classes (Lehman mini bonds?) it’s a tiny proportion of their income and hence largely forgotten about.

    Who knows, if the Mandatory Providence Farce / Fix is scrapped, the many people employed in this bollox will presumably be made redundant (and not have their severance pay deducted from their employers MPF contributions) then, unable pay the rent and mortgage, free up lots of property, boosting supply and thus lowering prices ?

    I might buy a parking space or a Sir David Akers Jones Psychedelic Freak Out – but it’s my choice – the MPF is not.

  6. Older than Old Timer says:

    Memories are getting a bit fuzzy. Akers-Jones did not give us the small house policy. He actually opposed it. It was one the most successfully corrupt British officials of the post-War period, Denis Bray, who we have to thank for the small house mess.

  7. Real Scot Player says:

    I agree MPF is a rip off but so is the whole Banking system. You buy anything through HSBC and they’ll take 1% or more for doing next to fuck all, and that’s 1% whether you buy 1,000 or 1,000,000. Same effort for them just 10 times or 100 times the profit. Until you fix that injustice you won’t fix MPF

  8. PropertyDeveloper says:

    The biggest MPF accumulated amount at the moment can’t be enough to buy more than a few square feet of property. I can’t see the “transition arrangements” working either: what happens when the mortgage runs after the date of retirement? And even if it was a good idea in theory, like local house maintenance, the medium-term practice might spring a few leaks.

  9. darovia says:

    I am semi-retired and drew my MPF pittance last year. I still work and pay salaries tax; however, that does not mean to MPF doesn’t affect me. The MPFA, a statutory body set up to ‘supervise’ this farce is a huge organisation given its complete failure to do anything meaningful. I remember when it advertised for staff on first setting up – the salaries offered were obscene by the standards of the day – and there is no reason to suppose they have moderated over time. We are all paying through the nose for this as well.

  10. Failed Alchemist says:

    Property Developer… precisely Watson to the point. Singapore’s CPF goes hand in hand with the HDB scheme where citizens buy public housing. The whole idea of Lee Kuan Yew is that a Singaporean will defend real estate that he owns. No wonder the good old HKer moves in and out as the tide bids.

    LKY definetely won’t care a damn about small house policies since land is scarce. Move or get put down. The red dot may not be perfect but its policies are not piece meal either. It seems we are doomed to repeat ourselves again and again since thinking quick & out of the box isn’t our forte. Rabble rousing in LEGCO definetely will not help but exacebate things since wearing a Che T-Shirt doesn’t mean much in a socialist play book.

  11. stockbrokers are leeches says:

    @RSP

    Anyone paying 1% commish for trading through HSBC has failed an intelligence test. There are brokers here currently at 0.18% commish on HK trades (Boom, for one).

  12. Real Scot Player says:

    @leechies

    Agree, but enough people do pay the Bank 1% and as they get away with that it’s easy to see MPF bods are at the same game.

  13. dopey says:

    Apropros of nothing I passed by old Henry in Princes Building on Monday, and I couldn’t help to note that his face looks even longer in person. It’s really something.

  14. Dr. Ruth says:

    “I agree MPF is a rip off but so is the whole Banking system. You buy anything through HSBC and they’ll take 1% or more for doing next to fuck all, and that’s 1% whether you buy 1,000 or 1,000,000.”

    As mentioned above, there are plenty of discount brokerages. Mutual funds sold by anybody in HK will be expensive, but there are plenty of ETF equivalents to what people hold in their MPF accounts. These ETF’s have extremely low expense ratios, and they typically track their indices much more closely than the mutual funds one can buy in an MPF account or through a bank. There have been market alternatives to the kinds of MPF portfolios most people hold for nearly a decade. There is absolutely no legitimate excuse for the robbery that is still happening in the MPF scheme.

  15. Real MPF Hater says:

    @ Lois Beluga

    While I endorse your general comments I think you are bit unfair on Sir David. He probably stands out as one of – if not THE only one of – the previous colonial administration who did not feather his nest. Now he is forced to rent a flat somewhere in Wanchai according to what I last heard, his NT home having been bulldozed without adequate compensation. So although Sir David has lost even his home, he still has his integrity intact , which these days is a rare commodity. I would hate to go down in the history books with an administrative legacy like Donald-the-duck’s (“he’s the one who sucked up to tycoons and polluted our air” ) . But I would be proud if one day I could have contributed even 1% in my own little way of what Sir David did in his way.

    But back to the main issue-of-the-day the F*********G MPF

    F**K it is the only rational verdict. Live with it, pay in as little as you can, put what you must pay in into the most conservative funds ( hey – they don’t earn anything but at least they don’t lose you anything) and get your money out in cash the moment you hit 65. Shit bugger f**k.

    But if you think that the HK govt f*****d up with the MPF take a load of this BS in the UK ( where our MPF barons obviously did their kindergarten, but not much more because they didn’t even pass their 11+ in f**k-up capability)

    My father ( now in his late 80’s) recently told me that as a well- paid executive for most of his 40 years working life in the UK he was forced to pay about 10% of his pre-tax salary into the UK whatever-it’s-called ( DHSS ? ) that handles pensions aka UK- MPF rip-off . Meanwhile his company arranged a separate pension for him, on which he now lives.

    The UK govt pension comes to about PDS 500 / month, all funded by what my father paid over those 40 years ( 10% of pre-tax salary … please note !) PDS 500 / month these days in UK barely covers the heating bills and a daily fish n chips or Chinese take- away ( Take- away for 2 costs PDS10 x 30 = PDS300/ month) .

    But because his company pension is funded from pre-tax earnings of his previous employer, his company pension is now taxable, and because it’s quite a generous pension he pays 40% tax on it ( ! )

    AND THE SAME 40% TAX IS ALSO CHARGED ON HIS STATE PENSION , FOR WHICH HE PAID 100% FROM HIS OWN PRE-TAX SALARY !

    So if we think the MPF f******d it up, well they did indeed, but they are still at kindergarten FU- competency…..

    ……….. fortunately !

    (Thank goodness for small mercies )

  16. Maugrim says:

    $30 million is inadequate compensation? Forced to live in a flat in Wanchai? I can think of a few Hk’ers worse off.

  17. Walter De Havilland says:

    @Older than Old Timer. I stand to be corrected, but my research indicates that Sir David took credit for the introduction of the small house policy in 1972 although he later (in recent years) has taken a different view. Dennis Bray was also involved in 1972, helping to draw up the policy. But it appears his role was secondary.

    The whole saga is a textbook example of unforeseen consequences. The policy had laudable aims, but has been hijacked as a means of property speculation and is not sustainable.

  18. EDB says:

    Yes RTP, we get it: HK is bad but the UK is worse, blah, blah, blah ….. BLAH, BLAH (almost forgot to use your favourite CAPS LOCK there)

    Can you please post something that doesn’t entirely revolve around that comparison. This is a blog about HK not the UK. If you want to whinge on about how bad the UK is and display your BBC insecurities to an audience that will appreciate them why not post on this asshat’s blog:

    http://bbczeitgeist.blogspot.hk/2011/12/military-wives-xmas-no-1-2011.html

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