Risk Attitude towards Mandatory Retirement Protection in Hong Kong: Why Are Risky Investments More Attractive?

Abstract

The government of Hong Kong Special Administrative Region (HKSAR) launched the Mandatory Provident Fund (MPF) scheme as a major source of retirement protection. Now, over 2.6 million employees and self-employed persons are currently making contribution to this scheme and they are required to decide on allocation of their MPF contributions to different MPF choices. However, we know little about how their decisions are formed. One major contribution of this study is to investigate people's perceptions of MPF and their preferences of MPF choices. And, this study has adopted the predictions of prospect theory, in order to explain why risky choices are more attractive to the public. Findings indicated that more individuals perceived MPF contribution as a loss, than those who perceived it as a gain; those who perceived MPF as a loss generally made higher contributions to the risky fund.

Saving for a Better Retirement: How Risk Attitudes Affect Choice of Retirement Scheme

“…In the context of financial decision-making, a large body of research has shown that people's risk attitude affects their financial portfolios and activeness in trading (Barasinska et al, 2012;Fellner & Maciejovsky, 2007;Weber & Milliman, 1997;Wong, 2014). For example, a survey in Germany showed that risk-averse private investors tend to hold risk-free assets in their investment portfolios (Barasinska et al, 2012).…”

“…Different MPF or ISA choices involve different levels of risk (Wong, 2014). Take the MPF market as an example, in which the MPF conservative fund is a less risky choice than an equity fund.…”

“…In fact, it is quite likely that many people in Hong Kong will face a situation just as the one described when faced with the mandatory provident fund (MPF). The MPF scheme is designed to protect a growing aging population by making sure that the current workforce is better prepared for their retirement (Wong, 2014;Yu, 2008). Up to the first quarter of 2016, 2.78 million Hong Kong residents are protected by this scheme (Mandatory Provident Fund Schemes Authority, 2016).…”