In this Dec 20, 2012 photo, a woman walks beneath signage for the Hong Kong Monetary Authority (HKMA). The HKMA has said on Nov 6, 2017 that the government will consider expanding the HK$10 billion public annuity scheme if it proves popular. (DALE DE LA REY / AFP)
HONG KONG – The government will consider expanding the HK$10 billion public annuity scheme if it proves popular, the city’s de facto central bank, the Hong Kong Monetary Authority, said on Monday.
Return on the expanded annuity will not be diluted, HKMA assured investors, saying the annuities can be allocated to HKMA's Exchange Fund, which has just posted record investment income year-to-date.
We would like to offer the annuity plan next year; those who draw from MPF or their own savings can invest with us in the fund. We are applying for the license.
Norman Chan Tak-lam, Chief Executive, Hong Kong Monetary Authority
HKMA’s Exchange Fund, the city’s reserve to back the Hong Kong dollar, posted record-high investment income in the first three quarters of this year at HK$189.8 billion amid the bull-run on the stock market, almost three times last year’s full-year investment income of HK$68.1 billion.
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“We would like to offer the annuity plan next year; those who draw from MPF or their own savings can invest with us in the fund. We are applying for the license,” said Norman Chan Tak-lam, chief executive of the HKMA.
Under the new scheme announced by the government in April, the government is to launch a public annuity plan at the middle of next year, where retirees – people aged 65 or above – can invest a lump sum of between HK$50,000 and HK$1 million in exchange for a guaranteed monthly income until death. The money will be managed by the government’s wholly-owned Hong Kong Mortgage Corp.
The proposed scheme proved to be popular and the authority has received ample positive feedback, Chan said. HKMA may expand the scheme, lifting the ceiling of HK$1 million for each investor and the initial pool of HK$10 billion.
The tentative rate of return stands at about 4 percent. At HK$1 million, a man at age 65 will have a guaranteed monthly return of about HK$5,800, and HK$290 at the minimum investment of HK$50,000.
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The market believed the plan offers a choice for middle-class elderly people worried about their retirement income.
Chan said the strong performance of the Exchange Fund is very satisfactory but he thinks the market should not pay too much attention to returns of the fund, as the primary object of the fund, as laid down in the Exchange Fund Ordinance, is to maintain the exchange value of the currency of Hong Kong.
HKMA can conduct market operations through the fund to buy US dollars from licensed banks at HK$7.75 to one US dollar and sell US dollars at HK$7.85 to one US dollar when there is a mismatch between the currencies.
Chan said US interest rates could impact returns for the fourth quarter.
“Amid the normalization of US’s monetary policy, Hong Kong interest rates will be increased to stay consistent with US rates, I think the market has not fully priced in the risk,” Chan said.
Kong’s stock market traded at very high valuations, he added, suggesting high interest rates will prompt capital outflow. Potential home buyers should also count in rising costs amid rate increases, he said.
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