Mandatory Provident Fund
It is a compulsory savings scheme put in place to assist Hong Kong residents upon their retirement.
The Mandatory Provident Fund (MPF) was introduced by the Hong Kong Government in December 2000. It is a compulsory savings scheme put in place to assist Hong Kong residents upon their retirement. Hong Kong has a rapidly ageing population, with people aged 65 and over forming 15% of the population in 2014. This is estimated to increase to 28% by 2034, and to 33% by 2064. Before the implementation of the MPF Scheme, approximately 33% of the population had retirement protection. Currently, around 85% of the working population is under retirement protection.
All employees and self-employed persons between the ages of 18 and 65 (unless exempt) are required to join an MPF scheme.Exemptions include: people already covered by statutory pensions, members of Occupational Retirement Schemes (ORSO), people from overseas working in Hong Kong for less than 13 months, domestic helpers and self-employed hawkers. The majority of Hong Kong’s workforce is not exempt and are therefore required to enrol in the MPF.
In accordance with the Mandatory Provident Fund Schemes Ordinance (MPFSO), employers are statutorily required to enrol their employees in MPF schemes and make regular contributions. Non-compliant employers may be subject to a maximum penalty of a fine of HK$450,000 and 4 years’ imprisonment.
Under MPF legislation, employers must select an MPF service provider and enrol their employees in an MPF scheme. Both employers and employees make regular contributions into the employee’s account. The benefits are then payable at retirement or under certain circumstances such as early retirement, permanently leaving Hong Kong, death or terminal illness.
Contributions are determined by the amount of relevant income earned by a person. Relevant income is any amount (in monetary terms) paid or payable to an employee by their employer. This includes wages, salaries, housing allowances, commissions, bonuses, etc. There is a minimum and maximum amount of relevant income and anything earned under or over these limits will affect contributions.
- Minimum Amount of Relevant Income = HK$7,100
- Maximum Amount of Relevant Income = HK$30,000
To calculate how much should be paid by the employee and employer each month, the following table shows the rates:
- Relevant Income per month: Less than HK$7,100 – Employer’s Contribution: 5% – Employee’s Contribution: 0%
- Relevant Income per month: HK$7,100 – 30,000 – Employer’s Contribution: 5% – Employee’s Contribution: 5%
- Relevant Income per month: More than HK$30,000 – Employer’s Contribution: 5% of the first HK$30,000 – Employee’s Contribution: 5% of the first HK$30,000
For self-employed people the rates are the same, however, there will be no employer contribution. As you can see, contributions by an employer, employee and a self-employed person are capped at HK$1,500 each per month.
When a company joins an MPF scheme, the trustee (scheme manager) will present the funds available for the contributions to be placed.Each employee is free to choose which funds to invest in. This decision is based on individual investment objectives and risk profiles – low risk funds will achieve a small but steady growth, whereas, a higher risk fund will achieve higher returns but will be more volatile. The money is then placed into the chosen funds and left to grow until the benefits are withdrawn. The trustee will issue an ‘Annual Benefit Statement’ which will inform you of:
- The income and expenditure of your account
- The account balance and accruals
- The extent to which the contributions are vested
- The gains and losses associated with your account over the relevant financial period
Employees are free to change their investment portfolio at any time but there may be a limit to the number of times you can do this which will be set by the Trustee of the scheme. Contributions from a person’s previous jobs can be moved into either the scheme at their new job or into a personal MPF account. Consolidating previous funds and remaining up-to-date will ensure easy management.
What does this mean for new companies in Hong Kong?
Enrolling your staff in an MPF scheme is a statutory requirement and this must be done at company formation to ensure you are fully compliant with the MPFSO. The decision of which MPF scheme rests with the employer and you may join more than one scheme so your employees have more choice to suit their needs.
There are a lot of factors to consider when choosing a scheme. These include types of funds available in each scheme, fees and charges payable and overall quality of customer service offered by the trustee of the scheme.
Since Startups and SMEs may lack the initial experience to handle MPF related matters, it is often advisable to seek the advice and services of an MPF intermediary. Not only will this safeguard you from unknowingly breaking the law, it will also give you access to a wide range of different MPF schemes to choose from and the advice and support from industry experts.