Meeting Hong Kongs Retirement Challenge by Richard Jackson - - PowerPoint PPT Presentation

Meeting Hong Kong’s 
 Retirement Challenge

by Richard Jackson A WEBINAR ON THE GAI-PPI ISSUE BRIEF

Richard Jackson is the founder and president of the Global Aging Institute (GAI), as well as a senior associate at the Center for Strategic and International Studies and a senior advisor to the Concord Coalition. Richard is the author or co-author of numerous policy studies, including From Challenge to Opportunity: Wave 2 of the East Asia Retirement Survey (2015); Global Aging and Retirement Security in Emerging Markets: Reassessing the Role of Funded Pensions (2015); Lessons from Abroad for the U.S. Entitlement Debate (2014); The Global Aging Preparedness Index, Second Edition (2013); and The Graying of the Great Powers: Demography and Geopolitics in the 21st Century (2008). Richard speaks regularly on policy issues related to the aging of the population and is widely quoted in the media. He holds a Ph.D. in history from Yale University and lives in Alexandria, Virginia, with his wife Perrine and their three children, Benjamin, Brian, and Penelope.

About the Author

Governments and businesses around the world are looking ahead and trying to anticipate the retirement needs of tomorrow’s growing elderly

• populations. Nowhere is this more difficult to do than in Asia, where

formal retirement systems are still maturing, rapid development is transforming traditional attitudes and expectations, and populations are about to age dramatically. It is in this context that the Global Aging Institute (GAI) and the Pacific Pension & Investment Institute (PPI) have joined forces to produce a new series of issue briefs that explore key retirement policy challenges in Asia. Some of the issue briefs will focus on the challenges facing particular societies, while others will explore broader demographic, economic, and social developments with important implications for retirement policy throughout the region. GAI and PPI hope that the series will inform the debate over how to improve retirement security in Asia and help to push it in a constructive direction.

About the GAI-PPI Issue Brief Series

Philippines Indonesia Malaysia Vietnam China Thailand Singapore Hong Kong South Korea Taiwan 0% 5% 10% 15% 20% 25% 30% 35% 40%

39% 37% 37% 35% 30% 28% 21% 16% 14% 10% 12% 13% 15% 12% 10% 10% 7% 6% 5% 5% 2015 2050

MUCH OF EAST ASIA IS BEING OVERTAKEN BY MASSIVE AGE WAVES

Source: World Population Prospects: The 2015 Revision (UN Population Division, 2015)

FIGURE 1

0% 10% 20% 30% 40% 50% 60%

38% 37% 34% 56%

Share of Today's Retirees in Hong Kong Who...

* Includes the MPF, civil service pensions, and ORSO schemes. ** In addition to contributory pension benefits, includes the Old Age Allowance and Old Age Living Allowance.

† "Depend" means net recipient of income from children. †† "Poverty" means an income of less than 50 percent of the median income.

Source: East Asia Retirement Survey: Wave 2 (GAI, 2015)

BY ALMOST ANY MEASURE, THE ECONOMIC CIRCUMSTANCES OF CURRENT RETIREES IN HONG KONG ARE PRECARIOUS

Receive a Contributory Pension Benefit* Have No Pension Benefits

• f Any Kind**

Depend Financially on Grown Children† Live in Poverty††

0% 20% 40% 60% 80% 100% Contributory Pension Scheme* Financial Assets**

77% 90% 42% 56% Today's Retirees Today's Workers

RATES OF PENSION AND ASSET INCOME RECEIPT ARE DUE TO RISE IN HONG KONG Shares of Today's Retirees Receiving Income versus Shares of Today's Workers Expecting to Receive Income from a Contributory Pension Scheme and Financial Assets in Hong Kong

* Contributory pension schemes include the MPF, civil service pensions, and ORSO schemes. 
 ** Financial assets include insurance and annuity products and stocks, bonds, and mutual funds, but exclude bank deposits. Source: East Asia Retirement Survey: Wave 2 (GAI, 2015)

FIGURE 2

RATES OF PENSION AND ASSET INCOME RECEIPT ARE DUE TO RISE IN HONG KONG

0% 10% 20% 30% 40% 50% 60% 70% 80% C h i n a V i e t n a m I n d

• n

e s i a M a l a y s i a T h a i l a n d S i n g a p

• r

e P h i l i p p i n e s T a i w a n H

• n

g K

• n

g S

• u

t h K

• r

e a

52% 41% 37% 16% 28% 19% 16% 8% 3% 18% 69% 61% 47% 45% 43% 33% 29% 15% 14% 14% Today's Retirees Today's Workers

RETIREMENT INSECURITY IN HONG KONG REMAINS WIDESPREAD 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

Source: East Asia Retirement Survey: Wave 2 (GAI, 2015)

FIGURE 3

ALTHOUGH THE OUTLOOK FOR TODAY’S WORKERS IS IMPROVING, RETIREMENT INSECURITY IN HONG KONG WILL REMAIN WIDESPREAD

Vietnam Indonesia Thailand Malaysia Philippines Singapore Hong Kong China South Korea Taiwan 0% 10% 20% 30% 40% 50% 60% 70%

68% 59% 45% 41% 31% 29% 27% 27% 27% 22%

MORE INDIVIDUALISTIC WESTERN VALUES ARE BEGINNING TO COMPETE WITH THE TRADITIONAL ETHIC OF FILIAL PIETY Share of Respondents Saying “Both Parents and Children Are Generally Happier When They Are More Independent and Self-sufficient”

FIGURE 4

Source: East Asia Retirement Survey: Wave 2 (GAI, 2015)

MORE INDIVIDUALISTIC WESTERN VALUES ARE BEGINNING TO COMPETE WITH THE TRADITIONAL ETHIC OF FILIAL PIETY

0% 5% 10% 15% 20% 25% 30% 2015 2020 2025 2030 2035 2040 2045 2050

24.7% 22.5% 20.3% 18% 15.5% 12.1% 9.2% 7.3%

THE COST OF A PAY-AS-YOU-GO PENSION SYSTEM WOULD RISE DRAMATICALLY AS HONG KONG AGES Pay-As-You-Go Contribution Rate Required to Finance a 35 Percent Replacement Rate in Hong Kong, 2015-2050*

* Projections assume universal coverage, retirement at age 65, price indexation of current benefits, and 1.5 percent real wage growth. Source: GAI calculations

FIGURE 5

10% MPF Contribution Rate

7% 9% 12% 16% 20% 23% 25%

THE COST OF A PAY-AS-YOU-GO PENSION SYSTEM WOULD RISE DRAMATICALLY AS HONG KONG AGES

MPF REPLACEMENT RATES ARE LIKELY TO BE VERY LOW MPF Replacement Rates in 2050 under Different Real Wage Growth and Real Rate of Return Assumptions*

* Projections assume the current 10 percent MPF contribution rate, a 40-year career, retirement at age 65, and administrative fees equal to 1.5 percent of assets under management. Source: GAI calculations

TABLE 1

2.5% 2.0% 1.5% 1.0% 3.0% 18% 19% 21% 24% 3.5% 21% 23% 25% 28% 4.0% 24% 27% 29% 33% 4.5% 28% 31% 34% 38% 5.0% 33% 36% 41% 45% REAL WAGE GROWTH REAL RATE OF RETURN

MPF REPLACEMENT RATES ARE LIKELY TO BE VERY LOW

0% 20% 40% 60% 80% 100% < .5 .5 - 1 1 - 2 2 - 5 > 5

16% 27% 43% 54% 44% 68% 59% 44% 31% 36% Retirees Themselves Government

HONG KONGERS ARE DIVIDED ABOUT WHO SHOULD BE RESPONSIBLE FOR RETIREMENT INCOME Share of Hong Konger 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. Source: East Asia Retirement Survey: Wave 2 (GAI, 2015)

FIGURE 6

HONG KONGERS ARE DIVIDED ABOUT WHO SHOULD BE RESPONSIBLE FOR RETIREMENT INCOME

0% 10% 20% 30% 40% 50% 60% 70% T h a i l a n d I n d

• n

e s i a M a l a y s i a P h i l i p p i n e s V i e t n a m S i n g a p

• r

e C h i n a T a i w a n S

• u

t h K

• r

e a H

• n

g K

• n

g

50% 32% 38% 27% 29% 19% 30% 29% 12% 8% 16% 29% 30% 41% 42% 43% 45% 50% 59% 63%

Agree Disagree

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

Source: East Asia Retirement Survey: Wave 2 (GAI, 2015)

THE LEVEL OF TRUST OF HONG KONGERS IN THE FINANCIAL SERVICES INDUSTRY IS SURPRISINGLY LOW

0% 20% 40% 60% 80% 100%

7% 10% 31% 32% 32% 93% 90% 69% 68% 68% Should Should Not

WHAT HONG KONGERS THINK ABOUT RETIREMENT REFORM Share of Hong Kong Respondents Saying That Government Should or Should Not ...

Source: East Asia Retirement Survey: Wave 2 (GAI, 2015)

FIGURE 7

Require workers to contribute more to pay for government pension programs Increase taxes to provide a basic pension benefit to those elderly who are in financial need Raise the retirement age Require workers to save more for retirement Encourage workers to save more for retirement 7%

WHAT HONG KONGERS THINK ABOUT RETIREMENT REFORM

ANNEX

0% 10% 20% 30% 40% 50% 60% 70% T h a i l a n d H

• n

g K

• n

g M a l a y s i a S

• u

t h K

• r

e a T a i w a n I n d

• n

e s i a S i n g a p

• r

e C h i n a P h i l i p p i n e s V i e t n a m

63% 60% 48% 34% 32% 30% 29% 26% 21% 20% 10% 8% 11% 13% 11% 6% 10% 8% 6% 10%

Income Personal Care

Shares of Respondents Saying "Grown Children or Other Family Members" Should be Mostly Responsible for Providing Income and Personal Care to Retired People

Source: East Asia Retirement Survey: Wave 2 (GAI, 2015)

BY OVERWHELMING MAJORITIES, EAST ASIANS REJECT THE TRADITIONAL MODEL OF FAMILY-CENTERED RETIREMENT SECURITY

0% 10% 20% 30% 40% 50% 60% 70% T h a i l a n d P h i l i p p i n e s C h i n a V i e t n a m I n d

• n

e s i a M a l a y s i a H

• n

g K

• n

g T a i w a n S i n g a p

• r

e S

• u

t h K

• r

e a

61% 48% 40% 44% 34% 18% 22% 9% 10% 18% 23% 30% 36% 41% 43% 45% 62% 63% 66% 66%

Government Retirees Themselves

Share of Respondents Saying "Government" Should Be Mostly Responsible for Providing Income to Retired People versus Share Saying "Retirees Themselves, through Their Own Savings"

Source: East Asia Retirement Survey: Wave 2 (GAI, 2015)

VIEWS DIFFER GREATLY ACROSS EAST ASIA ABOUT WHO SHOULD REPLACE THE FAMILY AS THE GUARANTOR OF RETIREMENT SECURITY