Date
19 November 2017
The Mandatory Provident Fund Schemes Authority is studying a plan to allow contributors to withdraw their savings for the purpose of buying their first home. Photo: HKEJ
The Mandatory Provident Fund Schemes Authority is studying a plan to allow contributors to withdraw their savings for the purpose of buying their first home. Photo: HKEJ

Is it a good idea to allow MPF withdrawals for home purchase?

The Mandatory Provident Fund has accumulated more than HK$770 billion since its establishment in 2000.

Currently, pension savers in Hong Kong can only make indirect investment through asset managers. In contrast, China, the United States and Singapore have already provided direct investment channels for pension savers, allowing them to directly purchase stocks or property.

In Singapore, pension savers contribute 37 percent of their salary to the city state’s Central Provident Fund. The CPF scheme has three sub-accounts: one for retirement, one for medical services and one for general purposes.

Contributors can withdraw money from the general purpose sub-account to pay mortgage loans.

China has a similar policy initiative. Contributors to the housing provident fund are able to withdraw their savings to acquire a home. The contribution rate is 5 to 12 percent of their salary.

The nation’s housing provident fund has a balance of 10.6 trillion yuan (US$1.6 trillion) as of the end of last year, and 939.7 billion yuan was withdrawn last year.

In the US, the 401k plan allows contributors to invest their pension savings in stocks on their own. But they have to withdraw the funds after retirement.

Hong Kong employees have long complained that they have no direct control over their MPF savings and are forced to hire professional asset managers to invest the money.

The Mandatory Provident Fund Schemes Authority (MPFA), which manages their pension fund, is studying a plan to allow contributors to withdraw their savings for the purpose of buying their first home.

Currently, the city’s 4.1 million MPF members have HK$183,000 in their accounts on average.

Given that this average is most likely a reflection of the large number of young employees who have been contributing to the fund for only a few years, long-time contributors should have a much higher account balance.

For instance, an MPF member with a monthly salary of HK$30,000 contributes HK$3,000 together with the employer each month. That would add up to HK$360,000 over ten years even with zero return. That will be a meaningful amount for buying a home, assuming the contributor will only be allowed to use part of that money for home purchase and leave the rest for retirement.

Nonetheless, it might not be a good time to roll out such an initiative given that housing prices have reached record highs.

Instead, the government should ramp up housing supply and then allow MPF participants to withdraw from the fund to buy a home. That would help lift up the home ownership ratio while maintaining a stable housing market.

The government intends to boost the supply of subsidized flats for sale, but many are wondering how tenants in public rental flats can afford the subsidized flats.

Well, the MPF can be one of the major financing sources. Also, authorities could consider MPF contributions in the assessment of “Well-off Tenants Policies”. That would force relatively well-off tenants to buy subsidized flats with MPF withdrawals.

This article appeared in the Hong Kong Economic Journal on Nov. 3

Translation by Julie Zhu

[Chinese version 中文版]

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RT/CG

Hong Kong Economic Journal columnist

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