Reflections on recent events, plus the occasional fact
free rant unfiltered by rational argument.
Hong Kong people have suffered many shameful indignities. The awful treatment at the hands of the British, who removed the UK right of abode while negotiating the handover must be in the top five. The isolation the community felt during SARS, abandoned and shunned, remains a traumatic memory. Corruption amongst well-paid and pampered senior officials also sticks in the claw.
And yet one of the most egregious humiliations came in the form of the Mandatory Provident Fund. Portrayed as saving for retirement, the MPF is no such thing. It's nothing more than an exercise in transferring hard-earned citizens money to fund managers. They are the ultimate beneficiaries.
In the process, the MPF removes choice by chiselling away at people’s freedoms. It’s clear that whoever conceived the MPF didn’t have the interests of the ordinary Hong Kong citizen in mind. Because as a pension scheme, it is a stunning failure. In bizarre new proposals, consultants are asking people to throw more cash into this failing product.
The MPF is approaching the 20-year mark. Flawed from the outset, the MPF scheme is based on myth and faulty data. The most unfortunate thing is the government has harnessed the full weight of the law to enforce this theft of people's earnings.
Meanwhile, sitting above is the bloated Mandatory Provident Fund Authority. A vast bureaucracy of dubious merit oversees the scheme. Some suspect that the authority is operating in cahoots with the finance industry to the detriment of the public. The failure to press for transparency on fees is one example of the failings of the MPFA.
Some 20 years ago, the so-called demographic time bomb myth prompted many governments to fret. The prevailing view was that citizens would face a bleak future if they didn’t prepare for retirement. With fewer people working and an ageing population, it's surmised that funds for pensions would run out. The financial industry seized upon this sentiment. They campaigned with relentless energy by funding studies and lobbyists to stoke fear.
Meanwhile, their greedy eyes set on the vast profits from capturing peoples savings. And what better way to ensure this than pushing legislation that forces the public to surrender their money.
Yet, the demographic time bomb is a dud. Yes, the number of elderly folks is increasing, and the percentage in work is decreasing. But, as people live longer and stay fitter, they can work. They are thus helping to offset the increase in the retired/working ratio. Plus, because people do not have children, they have a higher disposable income and are less prone to poverty. They spend less on child-rearing, increasing their ability to support themselves in retirement.
Besides, productivity gains as a result of innovation and technology mean fewer workers need to support each retiree. We no longer live in a world when one farmer supports one retiree. That simple equation does not apply. In summary, we fell for a distorted story.
Having perpetrated that crafty act, the mechanism of the MPF is restrictive, bureaucratic and expensive. For example, citizens are not allowed to invest in tracker funds, shares or property to secure a pension. Instead, we are all forced into buying products from a cartel that charges excessive fees. The lack of transparency and real competition between the MPF providers means we can’t assess why the fees are so high.
Plus those fees can wipe out gains. Hidden factors mean the averages quoted by the industry may be distorted figures. It's hard to tell. I’ve struggled to cut through the costs and hidden fees to understand the truth. That’s part of the problem for the laymen. If the MPFA served the public interest, it could fulfil this role. Instead, the information it provides is inadequate and disjointed.
Now, I’m prepared to admit I may have got this wrong. But in simple terms, over five years, all accumulated fees could amount to as much as $138 for every $1,000 invested. That’s a rip-off deal.
Next up is the offset mechanism. This process allows employers to seize employees MPF contributions. When making a worker redundant, the employer can reach into the workers pocket, and take money. That money is then given back to the worker to cover the employer's statutory obligations on severance pay. From July 2001 to December 2014, the accumulated amount of offsetting was $25 billion. As a result, the employees made redundant saw their MPF funds depleted. It’s dishonest. David Webb has a proposed solution here.
As a self-employed person, I’m required to contribute to the MPF despite the fact I already have an adequate pension. Also, there is a labyrinth of detail I must manoeuvre through. Of course, fees apply at every stage.
In many regards, the public is either blind to the failings of the MPF or unwilling to confront the issue. Eventually, the penny may drop. Although, in 40 years it will be too late to whine and moan. By then the authors of this travesty will be either dead or retired on their civil service pensions. Yep, that’s right. The civil servants who dreamed up this scheme didn’t need to join it. Meanwhile, the MPF will continue to keep fund managers in the style they are accustomed to.
Walter De Havilland was one of the last of the colonial coppers. He served 35 years in the Royal Hong Kong Police and Hong Kong Police Force. He's long retired.