Most Hongkongers have way too little socked away for retirement – and would have to work until 70 to keep up with their expenses, according to a new survey by AIA.
It found that 65 per cent of workers surveyed face a record high shortfall of HK$1.85 million (about US$240,000) in retirement reserves needed to retire at their preferred age of 61.
The 65 per cent who will have insufficient retirement reserves is a record high shortfall, the financial planner said. They face two choices: postponing retirement until 70 or reducing their monthly living expenses by HK$8,434.
Without saving more, and learning more about investments and post-retirement medical expenses, 91 per cent of Hongkongers will be forced into “pseudo-retirement,” working part time to cover their expenses after retirement, according to the survey of 1,001 respondents aged 18 to 65.
“Hong Kong people are living longer. To avoid spending their golden years worrying about finances, they should start retirement planning as early as possible and avoid relying on a single investment tool or being too aggressive or conservative,” said Elaine Lau, chief corporate solutions officer for AIA Hong Kong and Macau.
“Be proactive about managing MPF investments and make voluntary contributions where possible. Last, but not least, never neglect medical needs after retirement,” she said, referring to the Mandatory Provident Fund, the city’s compulsory pension programme.
The survey results were released as retirement in the expensive city has again erupted into public debate.
Chief Executive Carrie Lam Cheng Yuet-ngor ignited furor over her defence of an increase in the age limit for elderly welfare payments from 60 to 65.
Meanwhile, age discrimination is common in the city even though lifespans are extending.
The city does not have a statutory retirement age, but civil servants retire at 65 or at 60 if they are in the disciplined forces. In the private sector, the retirement age is usually 60 or 65, although it can be extended.
Of the many red flags in the survey, 44 per cent of respondents said they do not have a clear retirement savings and investment plan and expect to start retirement plan at 50 – just 11 years before the favoured retirement age.
In addition, 67 per cent have not made any MPF voluntary contributions, the survey found.
Hongkongers expect to have a median HK$3.75 million for retirement. After applying actuarial calculations, AIA came up with the 65 per cent figure for those lacking enough savings to retire at 61.
The shortfall now – HK$1.85 million – is up from HK$1.03 million in 2017.
The survey echoed a Citibank survey released last week that found Hongkongers are financially unprepared for retirement and death.
The average life expectancy for Hong Kong men will increase from 81.3 years in 2016 to 87.1 by 2066, and for women it will rise from 87.3 years to 93.1, according to a Hong Kong government estimate.
The MPF ranks among the least adequate in the world in terms of seeing to the future needs of pensioners, ranking ahead of only India and Mexico among 34 markets tracked in a global study of Melbourne Mercer Global Pension Index in October.
The MPF requires employers and employees to each contribute 5 per cent of the individual's salary at a combined contribution cap of HK$3,000 a month.
This is much lower than Singapore's programme, which requires employers and employees to pay a combined 37 per cent of the staff monthly salary without a cap, and Malaysia’s programme with a combined 24 per cent without a cap. In most Northern European countries, the contribution level for the employees is between 18 per cent to 20 per cent.
On average, each MPF member only has HK$380,000 which is far from adequate for providing a financial safety net for its 2.8 million members.
“At such a low level of contribution, even for those who start to contribute to the MPF at the age of 20, it would not be enough for their retirement at age 65,” said Stewart Aldcroft, chairman of Cititrust.
Hongkongers must save 12 times their annual salary to maintain their pre-retirement lifestyle when they reach 65, according to a November report by pension provider Fidelity International.
Last year’s poor Hong Kong stock performance made things even worse. Each MPF member lost HK$21,932 last year, as a 14 per cent drop in Hong Kong's stock market cut investment returns from the fund, according to data from Convoy Financial.
While medical costs are a significant part of retirement expenses, the AIA survey showed 29 per cent of respondents have not budgeted for these or do not even know how to.
For the 71 per cent who have taken medical expenses into account, they only expected their monthly post-retirement medical expenses to be HK$1,590.
Meanwhile, 40 per cent of those surveyed said they have not reserved funds for unexpected medical emergencies such as cancer, stroke and heart disease.
In April, the Hong Kong government will start offering tax incentives to encourage employees to pay more in voluntarily contributions to their MPF or deferred annuity schemes as well as to buy into voluntarily medical insurance plans.
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