Retirement Protection: A Plan for Hong Kong

The population of Hong Kong has been ageing since the 1970s. According to official demographic statistics, those who were 65 and above accounted for 3.95% of the total population in 1967. By 1997, this ratio had risen to 10.37%. For the same period, the median population age increased over 70%, from 20.3 to 34.9.

The ageing of the population has been mainly the result of low birth rates and lengthened life expectancy. Since both of these factors will continue to exist in the foreseeable future, the ageing trend is expected to persist for some time.

To Hong Kong, an important economic implication of an ageing population is the rapid rise of the need for protection of the elderly after retirement. Traditionally, such protection comes from savings over the working years as well as support by children and relatives. The family has been a main form of resource allocation across generations.

Nevertheless, there are bound to be people with only limited productivity during work years, or those who have made wrong economic judgements when young, so that their savings are not sufficient to allow them to live decently through their retirement years. At the same time, the decline of the family in modern times makes it less reliable as a means of safeguard against shortfalls in old age. Retirement protection has thus become a significant part of government economic and social policy, especially for an ageing society.

In Hong Kong, discussion about government policies over retirement protection has spanned a lengthy period of about 30 years. It was only until recently that the decision has been made to institute the Mandatory Provident Fund (MPF). In other economies, various schemes of retirement protection have been practised over the past decades, with all kinds of experience that Hong Kong could beneficially refer to.

From a cash-flow point of view, retirement funds can be either "pay-as-you-go" or "fully-funded". From an operational point of view, they can either be managed by the government or the private sector. What are the pros and cons of these different kinds of schemes? Which one would be most appropriate for Hong Kong? As the details of the MPF have yet to be finalized, are there issues that are still worth attention and discussion?

This book analyzes all these questions in an organized and detailed manner. The author, Professor Francis Lui, discusses systematically the three major kinds of retirement protection: the "pay-as-you-go" system, the central provident fund, and the private pension funds. He substantiates his arguments by going through the historical developments of these schemes in other countries. Due coverage is given to the experience of the United States, China, Singapore, and Chile, among others. He concludes that private pension funds are superior to the other two schemes. Further, he makes specific proposals regarding the actual management of the MPF in Hong Kong.

Retirement protection is closely related to the issues of individual savings and investment on one hand, and social welfare on the other. It affects the economic well-being of all members of society, and, as Professor Lui notes, the performance of the economy as a whole. It is well worth the attention of everybody concerned. Professor Lui has undertaken research on this topic for a long time and he has published many papers on it. This book is a comprehensive representation of his views and findings, and is therefore a necessary reference for discussion on retirement protection in Hong Kong.

Y. F. Luk
School of Economics and Finance
The University of Hong Kong