in Hong Kong Insights from Wave 2 of the East Asia Retirement - - PowerPoint PPT Presentation

The Future of Retirement in Hong Kong

Insights from Wave 2 of the East Asia Retirement Survey Richard Jackson, President Global Aging Institute

• Wave 2 of the East Asia Retirement Survey was conducted in 2014 in China,

Hong Kong SAR, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Thailand, Taiwan, and Vietnam.

• The survey is nationally representative, except that the samples for China,

Indonesia, the Philippines, Thailand, and Vietnam were limited to urban areas.

• The survey universe consists of “main earners” aged 20 and over, including

both current main earners and retired main earners.

• Respondents were asked about their general attitudes toward retirement, as

well as about their own retirement experience and expectations.

• Current retirees were asked about their current retirement experience, while

current workers were asked about their retirement expectations.

Survey framework

• There are enormous

differences in per capita income, institutional capacity, market orientation, and extent of population aging across the ten economies surveyed.

• Yet all ten economies have at

least two things in common: underdeveloped welfare states and retirement systems in which the extended family continues to play a far more important role than it does in the West.

Although the ten East Asian economies surveyed differ in critical respects, they also have important things in common.

7% 9% 9% 10% 15% 17% 16% 19% 19% 22% 10% 17% 17% 23% 29% 33% 33% 38% 40% 41%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2015 2040

Sh Share of

• f the

the Pop

• pula

latio ion Age Aged 60 & & Ov Over

Source: UN Population Division (2013)

By overwhelming majorities, East Asians reject the traditional model of family- centered retirement security.

10% 6% 8% 10% 6% 11% 13% 11% 8% 10% 20% 21% 26% 29% 30% 32% 34% 48% 60% 63% 0% 10% 20% 30% 40% 50% 60% 70% Income Personal Care

"Who, ideally, should be mostly responsible for providing income to retired people?” and "Who, ideally, should be mostly responsible for providing personal care to retired people?”

Share of Respondents Saying "Grown Children or Other Family Members"

Along with declining family size, the shift is being driven by the diffusion of more individualistic “western” values.

68% 59% 45% 41% 31% 29% 27% 27% 27% 22% 0% 10% 20% 30% 40% 50% 60% 70% 80% Taiwan South Korea China Hong Kong Singapore Philippines Malaysia Thailand Indonesia Vietnam

Share of Respondents Agreeing that “Both par parents and and chi hild ldren ar are gene generall lly hap happie ier whe when the they ar are mo more re ind ndependent and and sel elf-sufficient.”

Views differ greatly across East Asia about who should replace the family as guarantor of retirement security.

61% 48% 40% 44% 34% 18% 22% 9% 10% 18% 23% 30% 36% 41% 43% 45% 62% 63% 66% 66% 0% 10% 20% 30% 40% 50% 60% 70% South Korea Singapore Taiwan Hong Kong Malaysia Indonesia Vietnam China Philippines Thailand Retirees Themselves Government

"Who, ideally, should be mostly responsible for providing income to retired people?”

Share of Respondents Saying “Retirees Themselves, through Their Own Savings” versus Share Saying “Government”

By almost any measure, the economic circumstances of today’s Hong Kong retirees are precarious.

34% 37% 54% 66% 0% 10% 20% 30% 40% 50% 60% 70% Receive No Pension of Any Kind* Depend Financially on Grown Children** Live in Poverty† Receive No Income from MPF

* Includes MPF, Social Security Allowance, civil service pensions, and ORSO and other private-employer pensions. ** “Depend” means net recipient of income from grown children.

†

“Poverty” means an income of less than 50% of the median income.

Share of Today’s Hong Kong Retirees Who…

With rates of pension and asset income receipt due to rise in Hong Kong, the

• utlook for today’s workers is improving.

55% 42% 91% 77% 0% 20% 40% 60% 80% 100% State Pension System* Financial Assets** Today's Retirees Today's Workers

Shares of Today's Retirees Receiving Income and Shares of Today's Workers Expecting to Receive Income from the State Pension System* and Financial Assets** in Hong Kong

* “State pension system” includes MPF and Social Security Allowance. ** “Financial assets” include insurance and annuity products and stocks, bonds, and mutual funds, but exclude bank deposits.

• Although MPF receipt rates

are due to rise rapidly when today’s workers retire, replacement rates are likely to be very low.

• For many of today’s workers,

the expectation of asset income receipt is merely aspirational.

• Meanwhile, today’s workers

expect to receive much less support from the extended family than today’s retirees do.

Despite the positive trends, a large share

• f Hong Kong workers remain at risk of

economic hardship in old age.

14% 14% 15% 29% 33% 43% 45% 47% 61% 69% 18% 3% 8% 16% 19% 28% 16% 37% 41% 52%

0% 10% 20% 30% 40% 50% 60% 70% 80% Today's Retirees Today's Workers

Share of Today's Retirees Who Have "a Lot Less Income" Now Than When Working and Share of Today's Workers Expecting to Have "a Lot Less Income" When Retired

• Both the current MPF

contribution rate and ceiling

• n contributable wages need

to be raised.

• MPF administrative charges

greatly exceed international norms and must be lowered.

• The MPF also needs to be

back-stopped by a more robust floor of tax-financed

• ld-age poverty protection.

As societies age, funded pension systems can deliver adequate benefits at much lower cost than PAYGO systems can. Without reform, however, the MPF will fail to realize its promise.

12.5% 26.5% 0% 5% 10% 15% 20% 25% 30% Funded PAYGO

Contribution Rate Required to Deliver a 50 Percent Replacement Rate for Hong Kong Retirees in 2050: Projections for Stylized PA YGO and Funded Pension Systems*

* Funded pension system projections assume real wage growth of 2.0%, a real rate of return of 4.5%, a 40-year career, retirement at age 65, and administrative charges equal to 0.5% of assets. PAYGO projections assume retirement at age 65 and price indexation of current benefits. Source: GAI calculations

The bad news for reform: Hong Kongers are deeply divided about who should be responsible for retirement income.

36% 31% 44% 59% 68% 44% 54% 43% 27% 16% 0% 20% 40% 60% 80% 100% Less Than .5 .5 - 1 1 - 2 2 - 5 More Than 5 Government Retirees Themselves

Share of Hong Kong Respondents Saying "Government" Should Be Mostly Responsible for Providing Retirement Income versus Share Saying "Retirees Themselves, through Their Own Savings," by Income Bracket*

* Income brackets are defined as multiples of the median household income.

The bad news for reform: Hong Kongers’ level of trust in the financial services industry is very low.

63% 59% 50% 45% 43% 42% 41% 30% 29% 16% 8% 12% 29% 30% 19% 29% 27% 38% 32% 50% 0% 10% 20% 30% 40% 50% 60% 70% Thailand Indonesia Malaysia Philippines Vietnam Singapore China Taiwan South Korea Hong Kong Agree Disagree

Share of Respondents Agreeing and Disagreeing That "People Can Trust Financial Services Companies to Help Them Prepare for Retirement"

Note: This question used a five-point scale, with 1 being strongly disagree and 5 being strongly agree. "Agree" = 4 + 5 and "Disagree" = 1 + 2.

The good news for reform: Hong Kongers would support a wide range of constructive government initiatives to improve retirement security.

68% 68% 69% 87% 90% 93% 32% 32% 31% 13% 10% 7% 0% 20% 40% 60% 80% 100%

Require workers to contribute more to pay for government pension programs Raise the retirement age Increase taxes to provide a basic pension benefit to those elderly who are in financial need Require employers to offer more jobs to the elderly Require workers to save more for retirement Encourage workers to save more for retirement

Should Not Should

Share of Hong Kong Respondents Saying That Government Should or Should Not ...

• The traditional role of the family in providing for the elderly is receding in East

Asia, yet adequate government and market substitutes have not yet been put in place. The result is widespread retirement insecurity.

• Savings-based retirement systems like Hong Kong’s have large potential

advantages over PAYGO systems in aging societies. Hong Kong’s current system, however, is inadequate and needs to be reformed.

• For reform to succeed, the government will need to balance the public’s

competing views about the role of the individual and the state in retirement provision, while the financial services industry will need to better educate the public abut its role in helping people prepare for retirement.

• The time to act is now, while Hong Kong’s population is still relatively young

and the public’s support for reform is strong. If Hong Kong waits until its age wave rolls in, the task will become much more difficult.

Conclusions

GLOBAL AGING INSTITUTE

GlobalAgingInstitute.org