Hong Kong government officials clearly think that the people they govern are pretty stupid and will not have noticed that their latest scheme aimed at ducking responsibility for the looming aging population crisis not only amounts to diddly-squat but also insults the intelligence of older people.
Having resisted the idea of a universal pension system and relied on an arbitrary policy of occasional handouts, civil servants came up with the bright idea of introducing a public annuity scheme offering those above 65 the “opportunity” to invest up to HK$1 million in an enterprise offering laughable returns – the precise level of which is up for discussion.
Whoever dreamt up this nonsense did not seem to realize that Hong Kong people are unusually financially literate and understand how investment works. Thus, despite brave talk of luring HK$10 billion into the scheme with the promise of raising the cap in case of high demand, a mere 9,410 senior citizens applied for an allocation, proposing to invest HK$4.94 billion, less than half the target figure.
Now that the application period has ended and all those who applied will be offered exactly what they applied for, it is highly likely that many people who were initially prepared to take part will not do so as they come to realize the inadequacy of this self-financed pension scheme.
The reason being that there are far better pension schemes and so-called safe investments to be had, unlike this one which claims to be offering an annual yield of some 4 percent but in reality offers no more than 1.6 percent over a 15-year period. Oh, and by the way, other forms of “safe” investment offer the prospect of both yielding dividends and allowing you to get your investment back, the annuity scheme can be cashed in but penalties will apply.
Fifteen years is how long it will take for anyone investing in this scheme to start getting back more than they put in in the first place.
It works like this: If the maximum investment of HK$1 million is made and it is made at the youngest qualifying age of 65, women, who tend to live longer than men, will get a monthly return on the maximum investment of HK$5,300 (men get HK$5,800), which means that if the investor survives for more than 15 years, they can start earning real money on their investment.
Most investors are unlikely to be just 65 so they need to live a very long life to make a profit. Even today’s 65-year-olds will need to wait until they are 80 before getting back more than they paid in. Even though average life expectancy rates are high in Hong Kong, the average age of life expectancy for men is 84 and 87 for women. This means that on average there is a mere four years for men to get back more than they invested. It will take women seven months longer to start making a profit.
But even then these returns, which are fixed, are almost certain to be eaten away by inflation, which cannot possibly remain at zero for 15 years or more.
Did the bureaucrats really think that people would not notice this? Trying to put a brave face on things, Edmund Lau, who is in charge of the scheme, responded to news of the low response by saying that the figure of HK$10 billion was a cap, not a target, for investment. Could this be the same Edmund Lau who previously promised to increase the cap in anticipation of high demand? He is now saying, “the result was within our expectations. The annuity scheme is new and it takes time to educate the public about the product.”
He also claims that the lower yield is justified because this investment is risk-free. But the yield is not low: it is derisory even compared to notoriously low-yielding bonds. Even slightly more adventurous investors, who opt for boring old blue-chip stocks, are more or less certain to achieve an annual yield exceeding 1.6 percent over a 15-year period. So, Lau’s patronizing remarks about a lack of understanding are arguably more applicable to himself than the general public.
The crux of the problem is that the government has no real idea how to deal with the aging of the population. Right now roughly 18 percent of the total population or 1.3 million people are aged above 65. That figure is expected to rise to 31 percent in just 18 years from now. Shockingly more than 31 percent of the population aged over 65 is currently living below the poverty line.
Clearly this annuity is not for the elderly poor but it also does very little for those with a bit more money. So at last the government has achieved an equal playing field for the poor and the better-off elderly population by offering little to both groups.
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