The Mandatory Provident Fund (MPF) is now 20 years old and this has encouraged many to express their views on its failings and for some — primarily government representatives — to defend its successes. The complainants talk about the MPF’s poor returns, the high fees, the offset arrangements and the MPF’s failure to generate sufficient savings to enable a comfortable retirement.

All these complaints have merits but before dealing with them let’s remember the situation in Hong Kong in the year 2000 before the MPF was introduced. At that time, our civil servants had excellent pension arrangements and the only other pension plans in Hong Kong were the Occupational Retirement Scheme Ordinance (ORSO) schemes. ORSO schemes were well meaning but, due to a lack of portability legislation, they only produced adequate pension savings for those who stayed the majority of their working life in the same company and that company was one of the relatively few who had an ORSO scheme. All others had no pension arrangements at all.

For many, the chance to add to their pension savings for a few additional years will give them a greater chance of a comfortable retirement without requiring government support. This would be a straightforward and meaningful improvement to MPF

Some talk of the propensity of Hong Kong people to save and that some of the more prosperous employees would have set up their own savings program for retirement. However, the bulk of the poorer half of Hong Kong would have been able to save very little in high-cost Hong Kong.

The MPF has improved this situation significantly for many people. There is now about HK$1 trillion ($129 billion) sitting in MPF members’ balances. Most people have some money in their MPF account where before most had no money at all set aside for retirement. The current balances are far from enough but still represent a substantial improvement on the situation in 2000.

However, much needs to be done.

The first priority is to eliminate the offset mechanism which allows employers to raid their employee’s MPF account to pay for mandatory severance allowances. This in effect is making the employee pay the severance allowance to himself! The offset was part of a deal to gain employers’ support when the MPF was introduced. At the time, I do not think that anyone would realize the negative impact this would have on the MPF. A few years ago, the government committed to eliminate the offsets and went into lengthy negotiations with employers to achieve this. However, the commitment to eliminate offsets appears to have been deferred indefinitely and has not been mentioned recently by government. The deferment is bureaucratic in nature. The government implausibly argues that a major system enhancement is required to eliminate the offsets. This is nonsense. It is generally the lower paid that suffer most from the offsets and that helps to explain why MPF balances are so low for many of these employees. Action should be taken immediately to eliminate the offsets. If that means that the government should bear most of the cost, so be it.

Secondly, 10 percent of salary is simply not enough. Numerous studies in Hong Kong and elsewhere have indicated that 15 percent of salary is the minimum required to generate acceptable savings at retirement. The solution is simple — the government should start to contribute 5 percent of salary to add to the 5 percent from employers and the 5 percent from employees.

Until this time, the government has managed to introduce a mandatory pension scheme in Hong Kong without spending any government funds — the cost is borne by employers and employees only. The government even has an extraordinary plan to charge the costs of the Mandatory Provident Fund Schemes Authority (MPFA), the MPF regulator, to the MPF members. The time has come to leave this policy behind. Hong Kong is the most unequal society in the rich world. In other rich jurisdictions, the government plays a pivotal role in redistributing wealth and pension programs are a significant part of this. By contributing 5 percent to everyone’s MPF account the government would be demonstrating that it is starting to move in the right direction.

MPF fees are indeed too high and the government has done little to bring them down. Fees currently average 1.45 percent of assets under management and some providers charge significantly more than this.

Note, however, that provider fees should not be compared directly to fees charged by asset management companies. About half of all the expenses of providers relate to general administration rather than asset management. Providers are obliged to administer their plans according to regulations promulgated by the MPFA and this is expensive. The MPFA has proposed a partial solution to high fees. This is their sophisticated electronic-MPF platform (eMPF) that will bring together the general administration of all MPF providers. Unfortunately, this is a complex and expensive undertaking and industry insiders are very dubious that it will result in much savings, if any, for MPF members. It would be excellent if the MPFA could justify this program from the point of view of MPF members.

Meanwhile, the government should not wait for eMPF to reduce fees. The government could more easily reduce them by capping the fees charged by providers. These caps should aim to force average fees below 1 percent in 2025 and below 0.8 percent in 2027. Also, legislation should force providers to clearly show three numbers to each client — the fee I am charging you, the average fee I charge to all my clients and the average fee that is charged in the industry. Such an approach would surely help the MPFA to reduce fees.

Finally, the MPF’s rules should be rewritten to recognize that many will need to, or wish to, work beyond age 65 as life expectancy continues to increase. For many, the chance to add to their pension savings for a few additional years will give them a greater chance of a comfortable retirement without requiring government support. This would be a straightforward and meaningful improvement to MPF.

In conclusion, although much needs to be done, do not write off the MPF. Let’s work to make the MPF into the world-class pension system that Hong Kong people deserve.

The author is the chairman of the Business and Professionals Federation, a think tank focusing on Hong Kong policy issues. He has lived in Hong Kong for 32 years and is a past chairman of the Employers’ Federation of Hong Kong.

The views do not necessarily reflect those of China Daily.