Ideally, retirement means a person retire from their regular career; enter a new life span to review what they have contributed to their profession throughout their early and middle adulthood. When a person entering retirement, they must enjoy the rest of their life, the fruitful harvest gain from their previous efforts and pursuing a new goal with their spare leisure time.

The beautiful picture of retirement can only be achieved if you are being protected with a good retirement protection, such as provident funds or personal savings. Without these schemes, I am afraid the retirement will only be a start of a nightmare. In fact, before the implementation of the Mandatory Provident Fund scheme, only about one-third of the workforce of 3.4 million people have some form of retirement protection.

Contribution from the advancement of education level, numerous breakthrough in the medical treatment, modern technology to combat the natural disasters and so on, Hong Kong ‘s population are living much larger than before, but also getting older in a fast tempo. Nowadays, already ten percent of our population is aged 65 and above. By 2016 the proportion will be 13 percent and one senior citizen in every 5 people by 2035.

Unless some way is found of funding the welfare and health needs of the growing population of elderly, a massive burden will fall on the shoulders of the taxable working population. Their wages will be heavily taxed to meet the demands. Without sufficient financial resources, the scarce resources will jeopardize the well medical services and welfare we are enjoying now, something must be done to cope with the predicted situation.

The Pathway to Retirement Protection—Mandatory Provident Fund

The World Bank have outlined a framework of the protection for the elderly, so called ‘three pillars of old age protection’. This recommended that old-age programs should protect the old and also promote economic growth. The three pillars recommended by the World Bank are
Mandatory, privately managed, fully funded contribution scheme.
Publicly managed, tax-financed social safety net for the old.

Voluntary personal savings and insurance.

The SAR government is operating a Comprehensive Social Security Assistance Scheme, which provides basic social security to the needy, and after much debate it was decided in 1995 that the Mandatory Provident Fund (MPF) Scheme should be introduced, there was considerable argument as to the best system for Hong Kong. With the introduction of MPF, complemented by personal savings, Hong Kong will have in place all the three pillars for old age protection.

Mandatory Provident Fund Scheme Ordinance requires all employees (irrespective of their status as a temporary staff or part time worker) and self-employed persons to join a MPF scheme under which contributions will be saved for retirement. The ideology is to ensure people are adequately provided for upon reaching retirement age.

Employer and employee each pay 5 percent of an employee’s monthly salary into a privately run pension plan. The MPF law gives an employee a range of investment choices under an employer’s MPF scheme. Generally speaking, without other circumstances, the member can only collect the lump sum of the MPF benefits when they attain the retirement age of 65.

Problematic MPF?

Mandatory Provident Fund scheme which starts in December 2000, this scheme represents a starting point for forcing individuals to plan for their retirement. Besides helping to provide for the retirement needs of millions of people, the MPF is likely to radically reshape savings habits and investment attitudes and it will extend the pension umbrella to the remaining two million employed by about 250,000 small and medium sized companies.

Different retirement protection systems have their advantages and disadvantages. After careful consideration, it is generally accepted that MPF best suits Hong Kong’ needs, but as we know, no system is prefect, MPF is no exception, this controversial policy have drawn many criticisms.

Libertarians claim the system run contrary to the Hong Kong spirit, as individuals and firms are coerced into savings decisions they are better placed to make alone.

Other claim many workers with high mobility are able to avoid taxation by frequently changing employment and a lack of information about them would make it difficult to capture them in the MPF network.

Many more criticisms and oppositions have also targeted the MPF, in the following paragraphs; I will divide it into different aspects and analyze these criticisms and oppositions, so that we can get more detailed picture about this far-reaching policy.

Protection for all?

MPF is adding a pillar for our retirement protection; if it is true, it will consolidate the foundation of an enjoyable retiring life and the retired people are no longer worrying live under poverty. In fact, will it really protect all future retired people in Hong Kong? It seems to be the most challenging questions and controversial part of the MPF policy. Will the scheme really protect the elderly, unemployed, housewives and so on? I will divide the question into four parts—high income group, low income group, no income group and young, middle and old aged worker to look for the answer for the above questions.

High income people

Before we consider who will benefit the most from the scheme, we should know what you get out of the scheme depends on what you put in. As a result, low-income workers will enjoy less protection than the higher paid worker.

Many high-income people are working large companies and occupying the middle, high or senior position. Since they are specialized in their relevant profession and they possesses some kind of expertise knowledge in their working field, their bargaining power in the labor market are relatively higher, so their companies and organization will provide them many welfare and special allowances in order to lure them staying in the company. Nearly all of them will enjoy a pleasant retirement even without the implementation of the MPF, since many of them have significant amounts of personal saving, high value property or investment and existing pension fund.

Now the MPF has been implemented, both employers and employees will have to pay a minimum contribution of 5% of relevant income, this group of people seems to be much protected and secured from the policy.

Low-income people

As the points illustrated above, low income workers will enjoy less protection than the higher paid because what you get out of the MPF scheme depends on what you put in.

The greatest untruth of the MPF is that a gross 10 percent deduction from salaries, capped at a maximum income of $20,000 a month can make a meaningful dent in funding old age. This mandatory contribution level of the scheme is a good basis to start with, but it is not enough. People will need to pay more to get a better life in retirement. A simple example will illustrate more about the concept, for example, a young man who starts to pay into an MPF plan at 20 years old with an average income of HK$15000 per month. Assuming the investment grows with 5 percent inflation, after 45 years of contributions, he would receive just HK$771429, that would leave him just HK$4300 per month for the 15 years after retirement, if we assuming he die at age 80 (the average life expectancy in Hong Kong).

We should remember most low-income workers are earning only around $10000 or below per month. After many years of contributions, they would receive just around $2000-3000 a month. Also due to their income would merely cover their monthly expenses, they are without personal savings, their retirement may not be funded in a pleasant way, the effectiveness of the MPF scheme may not create a beautiful picture for this group of people.

The MPF scheme not only can’t provide an effective retirement protection for them, but also create some difficulties and hardships for them. Some unscrupulous employers are avoiding pay extra for the Mandatory Provident Fund scheme by slashing wages and making their staff become self-employed. Many of these problems came from the catering and construction industries.

Since Hong Kong are still recovering from the 1997 Asia financial turmoil, the most hard hit industries (transports, catering, restaurants, construction, manufacturing) are still struggling, most low income workers are working in these sectors (an estimated 500,000 people are working in the construction and catering industries, which account for about 17 percent of the total workforce in the SAR). Some employers were ‘playing tricks’ to avoid their financial responsibility because the MPF is an additional cost for these employers. They only cut staff salaries to save costs rather than taking risks to breach the law.

Some restaurant owners treated part of their staff wages as special allowances instead of basic salaries in an attempt to lower the employers’ contribution. Others effectively cut salaries by imposing an unpaid holiday arrangement on staff. Some construction firms had changed staff into self-employed contractors to avoid responsibility. The affected construction workers would no longer enjoy the benefits of MPF or other staff welfare scheme.

Transport employees are also affected by the scheme. A survey conducted by the Container Transportation Employees General Union members found 86 percent had experienced some reduction in pay and benefits by employers using the MPF as the reason. The cutbacks include reducing pay and benefits such as bonuses, travel allowances and telephone payments, signing new contracts that waive past years of services without compensations. They were forced to register as a business so they have self employed status. Since it is very difficult to find a job in the current climate, so they have to accept the new arrangement reluctantly in order to survive.

All those unscrupulous employers are not only exploiting these low-income workers they are also undermining the effects of the SAR government to build a provident fund system for Hong Kong.

We can see clearly the long-term benefits are far from the low-income workers, but the immediate negative consequences they should face now, so there is no doubt why the most opposite voice are coming from this sector.

Protection for Young, Middle and Old aged People

The benefits from MPF not only depend on the salary input, but also depend on the choice of funds. The choice of fund may be greatly influenced by the age of employee and what you can collect after retirement. For example, a young worker can afford to invest more in high risk, higher reward funds because if markets tank, they have a long time to recover. By contrast, an employee close to retirement cannot afford to risk short-term volatility taking a chunk out of his capital. Young workers seem to be the most benefit from the MPF scheme, compare with the middle or near retiring aged people. The majority of low income earners in their 40s and 50s have no chance of achieving what pension planners call a minimum replacement rate sufficient to fund a pleasant retirement, for example, a man who works for the next 25 years on the median wage of $10000 a month might get only $1700 a month upon retirement, based on commonly quoted return rate of two percent, less than social security assistance for a single person.

Finally, as workers cannot take any money back before reaching 65, and there are investment risks involved. The private sector rather than the government will manage the funds. The MPF in no way safeguards every citizen’s right to the security of basic provisions in life.

No income group

Many people have criticized the MPF scheme which starts in December 2000, neglects the elderly, unemployed and women particularly housewives, since the MPF requires ‘employer’ and ‘employee’ contribute to the scheme, so the well being of the no income people will not be guaranteed.

MPF scheme as a compromise package that does not serve the well-being of the most vulnerable. There are now 600,000 people over 65 and in 1996, one quarter of people over 60 were living below the poverty line, with a monthly income of under $2500.

Women will also remain stuck in a dependent role under the MPF scheme, less than half of the labor forces coerced by the scheme are women because many are either causal workers or housewives. When they get old, they can only expect to rely on their husband, if they have one or obtain comprehensive social security assistance.

At present, Hong Kong is operating a Comprehensive Social Security Assistance Scheme, which offers basic social security to the needy. With the introduction of MPF, complemented by personal savings and CSSA, Hong Kong will indeed have in place all the three pillars for old age protection. In fact, it is far from saying that the scheme provides an effective retirement protection for all and easily believes the problem of elderly poverty will be eradicated.
Burden for investors in Hong Kong?

Hong Kong acts as a financial center in the world and playing a significant role in the Asia. The implementation of MPF will definitely affect the investors, no matter the multi-national investors, big business entrepreneur, small and medium sized enterprises.

Investors of big business

Big companies in order to recruit the talents from the labor markets, many of them have been offering various welfares for their employees, these including a well-sound pension system. Before the implementation of the MPF systems, many big companies have start selecting their company’s MPF provider. For example, Swire Pacific said the process of selecting the company’s provider began two years old. As one of the Hong Kong’s biggest companies, Swire are operating companies, such as Cathay Pacific Airways, hotel, trading, marine and properly-development and employing 25000 employees, for this kind of big companies, it is important to have a provider with a sound administration system to deliver pension services to all their employees, since employees are the biggest assets for these big business operators.

Large companies appeared to be concerned about their employees’ opinions when choosing a provider, it can reflect large companies seem to support MPF scheme and it come along with their existing pension policy, it seems not to create financial burdens for this kind of companies compare with small and medium sized companies.

Investors of small and medium sized enterprises (SMEs)

Coming at a time when small and medium firms are struggling back into the black after the financial crisis, it is not surprising that the MPF is off to a shaky start. There is no doubt that the MPF presents an extra financial burden for companies that work on narrow profit margins when these kinds of companies were badly hit by the Asia financial turmoil. Small and medium sized businesses (SMEs) have protested vociferously over the MPF’s introduction, insisting they cannot afford it with the economy still recovering from recession.

Although MPF will extend the pension umbrella to the two million, employed by about 250,000 small and medium sized companies, the financial burden seems to be unbearable for the investors.

For small business investors, they are reluctance to join the scheme is not just about the financial burden. They also resent the time consumed by MPF decision-making and paper work because many of them were far too busy with the day-to-day business of running the firm to take on extra paper work.

How MPF scheme affects the Hong Kong’ economy?

MPF not only will have far reaching effects on the fund-management industry, service providers, but also the general economy. Since MPF is an investment programs, it will increase the pool of institutional funds invested in the SAR, broadening and deepening the financial markets, promoting their efficiency and thereby economic growth, it will bring positive charges for financial market.

On the other hand, some people criticize the MPF scheme will eventually upset the flexibility of Hong Kong because workers cannot take any money back before reaching 65 and there are investment risks involved. This compulsory saving scheme, unable an employee who leaves a company can get cash in a lump sum or use it to buy property or whatever and invest in other areas.

Conclusion

Although it is far from saying that MPF provides an effective retirement protection for all and elderly poverty will be eradicated, it really encourages people to save for their old age. No schemes are perfect, the MPF is no exception, but it is the scheme most suitable for Hong Kong’ needs. Since Hong Kong has a well-established and sound financial services sector. A privately managed retirement system under prudential regulation and supervision is the most effective and secure way offer retirement protection to the workforce. Also under a free competition environment, it tends to increase efficiency and reduce costs of operating the MPF scheme, which will benefit scheme members ultimately.

Nowadays, a large part of the social welfare expenses are spending on the Comprehensive Social Security Assistance (CSSA), in the long run, MPF scheme may reduce the financial burden of CSSA, spare welfare expenses can be spent on other social welfare areas, every citizens will benefit at large.

The scheme may be viewed with some skepticism at the moment, but after people have a chance to see the plan in action, attitudes towards long term saving and retirement should change. Then retirement could be something to look forward to with pleasure, rather than worry. But one things should be bear in mind, our government should also take care of the most vulnerable people in our society as the paragraphs mentioned above, provide them with appropriate assistance, especially the low income people. Only with that, Hong Kong will be a better, fairer society for everyone to live in.

Yet, we have the responsibility and obligation to provide a secure retirement for ourselves and our spouses. The companies our parents worked for had an obligation to fund their pension plan to take care of all company employees through their retirement years. Unions were created for the same reason and pensions were their #1 concern. Social Security was the ”back-up plan” as a supplement, NOT as the primary source of revenue. When the FDR administration introduced the Social Security system, life expectancy was approximately 67 years old; where people were expected to collect for a few years and die. Last year the life insurance industry created annuity and actuarial tables to age 120 and expect millions alive today to live well beyond age 100. Of course the tables do not reflect the quality of life, health or financial status of these people, just that they will be here to ages once thought to be only Biblical in scope.

Today, American businesses have virtually eliminated the Defined Benefit Plan – a traditional pension plan, and replaced it with a Defined Contribution Plan – the 401k or the 403b. In essence, the companies have skirted a direct obligation to their employees and replaced it with a direct participation program, with no obligation to match funds, whatsoever. Now, the employee will ”get out” of the plan in direct proportion to what he/she ”puts in” to their plan. Problem is; no one has been taught what the required contributions are to ”guarantee” a comfortable retirement income and lifestyle, factoring in the effects of inflation and a lifespan possibly exceeding age 100. Without proper planning, most Americans will outlive their retirement portfolios, creating a generation of poverty-stricken extremely senior, Senior Citizens.

The government is ”charging” us with the responsibility to fund our own retirement with what’s left over after paying our income taxes (both state and federal), the high cost of living and the expenses of raising and educating our kids. The Government demands of us fiscal responsibility while they have none! They just print more money or increase revenue by increasing taxes or by eliminating deductions, a back-door tax increase. Don’t fool yourself by depending on Social Security either! There is no guarantee that you will receive it, as they just might make the eligible retirement age 80 to receive a full check; based on the mortality tables mentioned earlier, or eliminate it all together if your income or assets are above a certain percentage. They might even cut the benefits in half or scale it back based on need, need I say, as determined by them.

It is obvious, to this Retirement and Estate Planning Specialist, that the only sure way to ”make it” financially is… to fund it yourself, in savings and investment vehicles that are guaranteed* to be worth more tomorrow than yesterday and are guaranteed* to provide an income for life in a tax-advantaged environment. In addition, plans need to be implemented that will allow you to protect your portfolio from what I call the five forces of portfolio demise: Liability, Expense of Health Care, Expense of Long-Term-Care, Taxes at Death and Market Losses.

There is a solution to this inevitable situation and that is to acquire a pension plan, one that is guaranteed* to provide an income stream for the rest of the pensioner’s life! Since companies are basically sending those types of plans the way of the dinosaur, where can a person create and fund a plan that will provide a monthly check for the rest of their life and even their spouse’s lifetime too, just like the pensions of the ”old days”? And, since we might live to age 100 and beyond, the perfect pension-like plan would also have the opportunity to provide an increasing income to keep pace with inflation while also providing a way to cancel the income stream in lieu of a lump-sum withdrawal at anytime we choose. I am thrilled and proud to report that there are savings and investment vehicles available, through age 90, that when combined, may accomplish all of these retirement and estate planning goals.

Interested in learning how? Great! All you need to do is: 1st Keep reading my column and tell others to do the same. 2nd Attend my workshops when you see them advertised in local papers. 3rd Visit our website frequently for current information. 4th If not fast enough for you, call my office for a non-obligatory, absolutely no-cost consultation to discuss your particular needs and questions, where I will share with you the techniques and strategies I believe will best accomplish your financial goals and objectives – it’s that simple.

In closing, I’d like to thank you for taking the time to read my column and I hope you will avail yourself of the opportunity to meet with me, one on one; to join our American Prosperity Group family of clients and enjoy the Peace of Mind that comes with Professional Retirement, Estate and Long-Term-Care Planning!

Early retirement planning is nothing more than a simple plan. Once the dream of retiring to something else is in your mind write down things you want to do and things you never want to do again. 2 lists, the hope tos and the never agains.

Have you ever heard “plan your work, then work your plan”…that is what it takes.

Some never agains may be shoveling snow, commuting, keeping up with the neighbors, it will be different for everyone but write it down to sharpen your focus of why you are retiring early.

Early retirement planning may include your dream of travel, it may be painting or photography, you could be a missionary or social service worker…whatever you want to do, commit it to writing and look at it often, again this will sharpen your focus and keep you on track.

Put a time frame on your plan

Goals should be measured against a time frame. If you want to retire in 5 years, and you have certain steps to take, put a to be accomplished by date on each step.

For instance if you want to retire to Mexico, a worthy goal, in 2 years, learning to speak passable Spanish in 12 months would be a step with a time frame that you could measure. Without the self imposed deadlines things tend to slip and goals are missed. Our early retirement planning had a five year time frame to retire; we cheated and retired in four years. Should have done it sooner than we did.

On the other hand some steps you may think are really important turn out to be unimportant in comparison to actually retiring.

For instance, before we left for the Caribbean we wanted to be more accomplished sailors. We discovered you learn as you go and things that we were told were important before you leave weren’t that important after all. Live and learn, but commit it to writing..that is the key.

The importance of writing down your plans cannot be overstressed.

And for the fellas and the gals write down your lists by yourself and then compare them. You may be very surprised at something that is important to you is not so important to your spouse. Come up with a blended list, it is a lot easier to navigate when both oars are pulled in the same direction.

Early retirement planning…get started right now. Enjoy.

Retirement is a subject that you cannot afford to postpone for long. It is an issue that needs to be dealt with sooner, rather than left for later. Pre-retirement planning online seminars can prove to be beneficial to not only those who are nearing the age of retirement, but also in the case of those who would like to start early preparations in order to secure their future. These seminars provide all the useful information on how to create a financially stable plan that can be executed in order to yield a sustained retirement income. These cater to every individual phase of a career, irrespective of whether you are just in the initial stages or at the peak of it. In these seminars, you get an opportunity to avail of some sound advice from some of the well known professionals from different walks of life. In short, online pre-retirement planning seminars are a feasible solution to help you to financially secure your life after retirement.

Besides providing all the essential data on how to go about planning for your retirement and preparing you emotionally so that you can make a comfortable switch over, they also focus on the retirement process by teaching you the basics. They address when to retire and various other post-retirement considerations that you need to take into account, before you finally decide to retire. Online pre-retirement seminars are also an ideal source of information on numerous other topics like the 401(k) plan, the social security benefits, and other emotional and financial issues associated with retirement. These online seminars also discuss and teach you how to calculate your retirement income after you have considered a broad range of factors influencing it. These include the ever rising rate of inflation, diversification of your financial resources in different options, investing in insurance policies and retirement programs.

Undoubtedly retirement can be an exciting period in life, but at the same time it can also prove to be very challenging transition. An online pre-retirement planning seminar deals with topics like the eligibility requirements for various payment options that one can avail of after retirement, ways to accumulate your retirement income, making emotional adjustments after retirement, pension plans, learning to maintain legal transparency, planning for health care facilities, tax deferred annuity accounts and assistance with financial planning. These seminars are perfect for employees from all age groups since, they not only address the needs and requirements of employees above 50, but also those under the age of 50. They offer counseling services and are very often provided by the companies that the employees are working for.

Rollovers

In a recent television commercial, a man is shown enjoying his office retirement party at the end of which he is asked to say a few words to his friends and soon-to-be-former co