What is it?
Traditionally in a Chinese society, the ideology was such that a retired person should be supported by his life savings and under the care of his children. However, as with most advanced societies, Hong Kong gradually adopted new characteristics to keep in shape as a competitive entity.
This adaptation resulted in lower birth rates, and when coupled with an increased life expectancy, puts the territory in a vulnerable position of a rapidly aging population. There was a necessity to respond to this issue before it gets out of control.
And that’s what the government of Hong Kong did when it launched the Mandatory Provident Fund back in December 2000.
The function was simple and objective – to provide a retirement provision beyond existing basic welfare benefits for the working population. What it means for you is the inception of a plan that assists in self-sustainability for life after retirement.
Coverage & Exemptions
It is a safe bet to consider yourself included under the scheme if you are a working citizen of Hong Kong between ages 18 to 65. Most people are, unless they fall in any of the following exempted categories:
- Temporary employments below 60 days
- Street hawkers
- Domestic employees
- Expatriates holding employment for less than 13 months
- Expatriates who already possess their own retirement scheme in another country
Now that you have ascertained your place in the MPF system, the next step is to understand what range and part of your income is subjected for liable contributions.
The table below illustrates the current minimum and maximum relevant income levels accordingly:
|Salary Frequency||Minimum Level (HK$)||Maximum Level|
|More than once monthly||280 daily||830 daily|
|Monthly||7,100 monthly||25,000 monthly|
|Others||7,100 monthly, pro-rated||25,000 monthly, pro-rated|
Note that your income refers to all payments you receive from your employment, including commissions and bonuses. The only exclusions are for long service and severance payouts.
If you are self-employed, the amount is based on the assessable profits that is reflected on your latest Notice of Assessment
Both employers and employees are required to contribute 5% each of monthly relevant income into a selected MPF scheme. If you are reluctant to explore other private investment means, you can always choose to capitalize on your MPF by making voluntary contributions.
And that doesn’t even have to be a permanent decision, since they can be arranged either as regular or ad-hoc top-ups. That way, you will always be able hope on another train.
Now, perhaps the question waiting to be answered is when does one regains access to the funds and accrued benefits that are parked in the MPF? Under ordinary circumstances, they will be available for withdrawal when the participant arrives at 65 years of age.
There are, however, special considerations for premature withdrawals limited to the following instances:
- Total incapacity
- Immigration/Permanent departure from Hong Kong
- Early retirement between 60 to 64 years old
- Small balance account
With the exclusion of voluntary contributions, employees can claim tax deductions for mandatory inputs subjected to a capped amount. Self-employed participants will also enjoy a generally similar rule in tax deductions.
Prior to the introduction of the scheme, it was found that less than a third of the working population in Hong Kong had sufficient funds stashed away for retirement.
If anything, that is a good wake-up call.
The MPF retirement plan is primarily self-managed, which means participants enjoy broad control over their mandatory savings. Depending on individual risk profile, they can invest their savings accordingly to potentially achieve desired returns while being subjected to regulatory protection.
As much as possible, it is always wise to engage other savings and investment channels. The MPF is a good tool, but it should not be the only one. Project what kind of life you desire to lead after retirement, and adopt suitable practices relevant with your current resources.
Start by getting your MPF portfolio right!