Of the nearly 400 opinions that the government collected regarding the build-up of a provident fund system, aimed to serve as a new layer for residents’ pensions, most support the option whereby employers and workers each pay 5 per cent of the latter’s monthly pay to contribute to the scheme, and the proposal that suggests a vesting scale for the scheme.
A conclusion report based on the opinions collected in public consultation was published by the Social Security Fund yesterday. It noted that over 60 per cent of the 399 opinions collected supported the proposal of the employer and worker each contributing 5 per cent of the latter’s basic monthly wage to the provident fund, a pension system that the government aims to foster on a non-compulsory basis first.
The legislation process of the provident fund system is expected to start next year, the president of the Social Security Fund (FSS), Ip Peng Kun, told media in October. Following the legislation, the government intends to run the provident fund system for three years before deciding whether or not to make it a compulsory practice.
As the opinions collected by the FSS show, doubts have been expressed over the 5 per cent contribution of monthly pay by both employer and employee as being insufficient to serve as retirement protection.
Some of the opinions expressed, citing the experience of Hong Kong’s Mandatory Provident Fund, suggest a higher contribution ratio of 8 per cent to 10 per cent from the basic monthly salary for employer and worker to be paid to the fund each should be applied.
The government proposes the non-mandatory provident fund scheme to first apply to those earning between 6,500 patacas (US$813.9) to 30,000 patacas a month, noting that it would review the income range and the contribution ratio on a regular basis following the scheme’s implementation.
Of the consultation, the government also noted in its report that over 70 per cent of the nearly 400 opinions collected opt for a vesting scale to apply for the provident fund scheme.
The vesting scale means that the amount of accrued benefits derived from the employers’ contributions that can be vested in the employees, is based on their years of serving in the company. It is a preferred proposal over the so-called ‘hedging mechanism’, whereby bosses can use their contribution to the provident fund to compensate workers for dismissal.
Under the proposed vesting scale system, for those that work for three years or more but less than four years, employees can obtain 30 per cent of the accrued employers’ contributions for the provident fund; this ratio increases by 10 per cent more per each year that the employee continues to serve at the company until he or she can obtain 100 per cent of the accrued contributions upon serving the company for 10 years.
While the vesting scale proposal is a preferred option for the scheme, there are opposing opinions that argue that the option does not favour employees who work a shorter employment period, such as those working in the construction sector.
Some residents suggest that employees participating in the scheme should be able to obtain 10 per cent of the accrued employers’ contributions after serving in the company for a year; then the employees can get an additional 2.5 per cent of the accrued contributions every three months upon serving in the same company.
Residents can withdraw their accrued contributions from the provident fund when they are 65 years old, or make the withdrawal when 60 upon reporting to the authority as a retiree.
The FSS noted in its conclusion report that it may not be choosing annuity as the form of issuing the accrued contributions to the retirees.
Citing opinions from fund management entities, the FSS said that the annuity option may not be feasible as the current provident fund system has not taken the life expectancy of residents here into account; and that the annuity payment, which requires a stable and large capital to operate, is more subject to the fluctuations of interest rates.
The FSS also said that it would, in tandem with the Monetary Authority, study whether to establish a default fund for the provident fund scheme’s members.