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Calling it a day in Hong Kong? Not if you plug that US$300,000 gap

Calling it a day in Hong Kong? Not if you plug that US$300,000 gap
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Many Hongkongers must work past retirement age as they face US$300,000 shortfalls in their average pension savings: Schroders survey

The average Hongkonger faces a HK$2.4 million (US$300,000) gap between their expected post-retirement expenses and the money available in their pension funds, according to a survey released on Tuesday.

As a result of the eye-watering shortfall, almost three quarters of people believe they will need to continue to work beyond the expected retirement age, according to the recent survey of 1,000 Mandatory Provident Fund (MPF) members carried out by Schroders.

There is no official retirement age in Hong Kong, but most companies require staff to call it a day between 60 and 65 years of age.

The findings echoed a survey by HSBC Holdings released in September last year, which found that 70 per cent of respondents expected to have to work beyond the unofficial retirement age.

In comparison, only 40 per cent in the US share this belief, according to Schroders, a London-headquartered fund house with £750.6 billion (US$957 billion) of assets under management globally. It also manages HK$30.7 billion (US$3.9 billion) in retirement investment funds in Hong Kong.

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China’s elderly are heading to retirement, here’s why that’s a problem

China’s elderly are heading to retirement, here’s why that’s a problem

“While many Hongkongers are willing to work in retirement, our global experience in pensions investment suggests that working longer is not necessarily a solution to financial shortfall,” said Lesley-Ann Morgan, global head of pensions and retirement at Schroders, in a media briefing about the survey.

She noted there is a at least a positive side to the problem for Hongkongers, because it is partly because they have the longest life expectancy worldwide. Men on average live to 83 years of age, while women can expect to be around for 88.7 years, based on United Nations Population Division estimates for last year.

This means that, on average, each retiree can expect to live for 20 years or more after retirement. However, the Schroders survey showed that most only manage to save enough for 15 years.

Morgan said Hong Kong people should start their retirement planning as early as possible and should also look to make investment choices that lead to stable growth that can beat inflation.

Unfortunately the city’s younger people tend to choose very conservative, low-return investment options, turning more aggressive when they get older and realise their retirement needs will not be adequately met, usually at about 40 years old, according to Roger Lau, Schroders’ head of retirement business for Hong Kong.

“They should do it the other way round,” he said. “They have enough time to catch up if they invest in high-growth funds at a young age. They should take a more balanced approach as they grow older.”

Lau urged the MPF members to take a diverse approach and a long-term view.

The city’s compulsory pension scheme, the MPF, has an average of only HK$258,700 for each of its 4.7 million members, based on assets of HK$1.23 trillion as of May 21, according to data provided by research firm MPF Ratings.

Its investment returns have improved this year, with an average of 6.3 per cent in the first five months, the highest since the same period of 2017, according to MPF Ratings’ data. This came after a 3.5 per cent gain last year that reversed losses of 15.7 per cent in 2022 and 0.3 per cent the year before that.

The Schroders survey found respondents now expect a 5.7 per cent return on their MPF investment. A similar survey conducted in 2018 showed they expected a return of 3.7 per cent.

The Schroders survey showed that over 70 per cent of the respondents named the market downturn, healthcare expenses, and inflation as their major worries about their retirement plans.

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