The cap on investment into the scheme will be lifted to HK$20 billion in the first year if initial interest translates into the actual take-up

Hong Kong’s government would double the size of a public annuity scheme for pensioners if the strong initial interest in the offer translated into oversubscription, the city’s financial chief said on Thursday.

Under the scheme, first announced last year, residents aged 65 or above can register between July 19 and August 8 to invest up to HK$1 million (US$127,426) each in exchange for monthly payments. The government originally set the maximum amount of investment it would accept in the first year of the scheme at HK$10 billion but will double it to HK$20 billion if there is sufficient demand.

“After the government announced the public annuity plan last year, the public has responded positively. If there is oversubscription of the plan by the public, the [operator] is prepared to double the first tranche quota from the current HK$10 billion to HK$20 billion to meet the demand,” Financial Secretary Paul Chan said after hosting a launching ceremony for the scheme.

The plan is the government’s latest initiative to cope with Hong Kong’s rapidly aging population. The city, which lacks a comprehensive social security system, has 1.3 million people aged 65 or over, about 18 percent of its total population, but the number is expected to increase to 31 percent of the population by 2036.

Under the scheme, residents will pass their investment to a government agency, HKMC Annuity (HKMCA), a wholly owned unit of the Hong Kong Mortgage Corp that will oversee the scheme. HKMCA will pass the money on to the Hong Kong Monetary Authority, the city’s de facto central bank, which will invest it and pay the investor every month.

Residents investing the maximum HK$1 million lump sum would earn HK$5,300 every month for women and HK$5,800 a month for men, the lower figure for women taking into account a longer life expectancy. The minimum investment of HK$50,000 would earn HK$265 a month for women and HK$290 for men. The monthly payments are for life and the government would shoulder any investment loss.

Two older people the Post spoke to said they backed the scheme.

Wong Lap-wai, a driver who will turn 65 in two years, said he would buy into the scheme.

“It is a government-run scheme so there is no need to worry about a company going bankrupt. There would be monthly guaranteed payment for life which assures of a stable income every month after retirement,” he said.

Meanwhile, Cheung Tin-sang, who is still working as a broker, said that as he was now 80, the scheme was too late for him, but he would recommend it for others.

“For those who are 65 or 70, I would encourage them to buy into the scheme as they could have a stable monthly income of about HK$5,000, which is pretty good for a retiree,” Cheung said.

If investments in the scheme were to exceed the higher threshold, the HKMCA would adopt an allotment system, reducing investors’ contributions. But they would be free to invest any part of their money remaining in the following year. The investment caps for the second and subsequent years are yet to be decided.

“Ageing is a perennial issue for Hong Kong society, as every year there are over 100,000 people who will become 65. Hence, the annuity plan is designed on the basis of a regular subscription, “ said Edmond Lau, chief executive of HKMCA. Lau said applicants can expect an average annual rate of return at 4 percent.

This article appeared in the South China Morning Post print edition as: Public annuity scheme may be raised to HK$20b