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Abstract This paper analyses the differing practices of the two affluent Asian financial centres of Hong Kong and Singapore with respect to providing income security to their rapidly ageing populations. Compared to Singapore's 50-year-old CPF, which is centrally managed, non-transparent and non-accountable, Hong Kong's MPF scheme, begun in 2000, incorporates nearly all the best international pension fund management and governance practices. Moreover, while members of the MPF earn market rate of returns and enjoy considerable choice, CPF members earn interest that bears no resemblance to returns from investing their assets, and its members enjoy very limited choice. However, both the MPF and CPF members do not enjoy protection against longevity and inflation risks, and do not address the needs of the lifetime poor.
Keywords: Asian financial centres; Hong Kong's Mandatory Provident Fund (MPF); Singapore's Central Provident Fund (CPF); managing pension reserves; pension fund governance; financing old age; life insurance; mutual funds; social assistance; notional defined benefit
Introduction
Hong Kong and Singapore are the two major financial centres in Southeast Asia and, as Table 1 suggests, are similar in many ways. Both are former British colonies that have adopted the common law tradition and Western notions of trusts, fiduciary duty and prudent investor. Both have relatively high standards of living, high levels of education, few, if any, individuals involved in agricultural production, low birth rates, considerable inward migration from outside, very high levels of urbanisation, high life expectancy, moderate income inequality, and limited requirements to respond to domestic political pressures.
Despite these similarities, the two city-states have adopted very different policies with respect to providing income security to an increasingly aged population.1 Singapore relies on a mandatory savings system (called the Central Provident Fund or CPF) managed centrally by a government statutory board to provide retirement protection.2 The CPF was established in 1955, before independence, and falls under the purview of the Ministry of Manpower. Effective in April 2001, Singaporean wage earners can also voluntarily contribute to a tax advantaged supplementary retirement scheme. Hong Kong's mandatory provident scheme (MPF) was introduced in 1995 and became operational in December 2000.3 The MPF is regulated by a statutory body, but its administrative and investment functions are undertaken in a decentralised manner. This paper examines the...