HONG KONG - Hong Kong should limit fees for the city's mandatory pension fund and encourage workers and companies to increase contributions, Mercer says.
More than two million workers pay an average 2% of their contributions as annual fees in the Mandatory Provident Fund, which holds more than HK$300bn ($39bn) of savings. This compares with 0.8% in countries such as Australia and the UK, said Mercer.
In a report entitled: "Uncovering the Cracks in Hong Kong's Mandatory Provident Fund", Mercer said such levels of fees suggest that there may be opportunities for smaller providers to consolidate in order to improve efficiencies.
"Fees are a concern but we believe the best way to manage them is through market forces and policy changes that improve the competition for service," said Gary Tok, leader of Mercer's Greater China outsourcing business.
"Greater disclosure of fees and how they are levied will bring a level of transparency that should help demonstrate value for money and facilitate competition. "We also think that there is much that can be done by providers to improve the consumer experience of the MPF.
"Retirement products need to be more consumer centric, focusing on helping individual employees determine what they will need in retirement and how much they need to save now to reach their retirement goals."
Hong Kong has the fifth-highest life expectancy in the world, and the dependency ratio is set to jump from 35% in 2007 to 61% in 2036, the report added.
Alan Oates, leader of Mercer's Retirement, Risk, and Finance business in Hong Kong, said: "The design of the system is in need of review. We have run examples that show, even for relatively modest earners, the mandatory contributions to the MPF on their own are unlikely to be sufficient for a sustainable retirement.
"In addition, the withdrawal phase of the system needs to be developed to better protect wealth in retirement - for example a requirement to use part of the fund to purchase annuity income."
The fund was launched in 2000 to help cater for the ageing population. Its net asset value has increased more than 25- fold to HK$307.65bn over the decade.
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