As an effective retirement protection plan in Hong Kong for many years, the Mandatory Provident Fund (MPF) has been officially implemented since 2000. Participation is mandatory for Hong Kong employees between the ages of 18 and 65, and only a few are exempt. This article will briefly describe the types of Mandatory Provident Fund (MPF) schemes and the differences between mandatory and voluntary contributions.
Why is there a Mandatory Provident Fund Scheme (MPF)?
The prototype of the MPF scheme can be traced back to 1966 when the British Hong Kong government had put forward relevant proposals, but the continuous public consultations and Legislative Council meetings over the years have not resulted in their formal implementation.
In 1995, due to the aging population problem in Hong Kong, the government foresees that the employed people may have to support more retirees in the future, so the Mandatory Provident Fund Schemes Ordinance (referred to as the “MPF Ordinance”) was enacted in that year, and the subsidiary legislation was Adopted in 1998, 1999 and 2000. The Mandatory Provident Fund (MPF) system has been officially implemented since December 2000. It is an important part of the retirement protection system to save for the retirement life of employed people.
What are the types of Mandatory Provident Fund Schemes (MPF)?
There are three main types of Mandatory Provident Fund Schemes (MPF), namely “Master Trust Scheme”, “Employer-Sponsored Scheme” and “Industry Scheme”.
The most common is a master trust plan, where any employer, employee, or self-employed person can open a personal account or a tax-deductible voluntary contribution account, manage and invest collectively, and take advantage of economies of scale.
Employer-run plans are limited to employees of a single employer, its affiliates, or associated companies, and members cannot open personal accounts in the plan.
Mandatory Provident Fund (MPF) Contribution Methods and Rules
Mandatory Provident Fund Schemes (MPF) is generally divided into mandatory contributions and voluntary contributions/tax-deductible voluntary contributions.
Employers and employees are required to inject 5% or more of the monthly contributions according to the income of the employees concerned; Self-employed persons are also required to make mandatory contributions of 5% or more of their income.
Both the employee and the employer are required to make contributions to the Mandatory Provident Fund (MPF) account of 5% of the employee’s relevant income, subject to minimum and maximum income levels. Self-employed persons can also make contributions to the Mandatory Provident Fund Scheme (MPF).
For employers who pay a monthly salary, if the employee’s monthly relevant income is less than $7,100, there is no need to make mandatory contributions; between $7,100-$30,000, 5% of the relevant income is required as a contribution; if it exceeds $30,000, a mandatory contribution is required. Contribute $1,500.
For employees on monthly salary, if the employee’s monthly relevant income is less than $30,000, 5% of the relevant income will be used as a contribution; if it exceeds $30,000, a contribution of $1,500 will be required.
For scheme members, once Mandatory Provident Fund (MPF) contributions are deposited into the account, the investment returns and entitlements vest in the employee member.
In addition to mandatory contributions, employees, self-employed persons, and employers can choose to achieve additional voluntary contributions through the following methods:
• Employees can make voluntary contributions to their existing employer’s Mandatory Provident Fund (MPF) scheme contribution account;
• Participate in a Mandatory Provident Fund (MPF) scheme with tax-deductible voluntary contributions;
• Participate in a Special Voluntary Contribution Mandatory Provident Fund (MPF).
For employees, making additional voluntary contributions in the contribution account through the employer, or subject to the terms of the plan, the withdrawal or transfer of Mandatory Provident Fund (MPF) needs to be processed after leaving the company.
The above information is for reference only. If you have any questions about the Mandatory Provident Fund (MPF), we welcome your inquiries.