The Mandatory Provident Fund (MPF) is a compulsory pension fund designed by the Hong Kong government as a major protection scheme for the aged and retired residents.
The main purpose of MPF serves as a retirement protection for Hong Kong’s aging population. According to statistics published by the Hong Kong’s Centre for Health Protection, life expectancies at birth for both genders have increased over the past 48 years. With the challenge of a rapidly aging population, the working population will have to support a larger number of retirees in years to come.
Who is covered under MPF?
All regular and/or casual employees and self-employed persons who are at least 18 but under 65 years of age are required to join an MPF scheme.
There are certain instances where a person is exempted from joining an MPF scheme. This includes domestic employees, self-employed hawkers and people covered by statutory pension or provident fund schemes such as civil servants and subsidized or grant school teachers. More of these exemptions can be found here.
For employees who are working outside of Hong Kong, they may be covered by the MPF system provided there is sufficient connection between the employee and Hong Kong. Likewise, a person who is employed in Hong Kong but working outside Hong Kong on a temporary basis is also covered by the MPF system. Examples of such instances include aircraft crews and professionals on overseas work assignments.
Type of MPF schemes
There are three types of MPF schemes: Master Trust Schemes, Employer-sponsored Schemes, and Industry Schemes. The key characteristics of these three individual schemes are as follows:
Master Trust Schemes
This scheme is the most common of the three schemes and is open to all employees of participating employers, self-employed persons and persons with accrued benefits to be transferred from other schemes.
This type of scheme works on a membership-only basis, in which it is limited to employees of a single employer and its associated companies. Such schemes are typically utilised by companies with large number of employees.
These schemes were specially established for employees of the catering and construction industries, particularly casual employees i.e. those who are employed on a day-to-day basis or for a fixed working period of less than 60 days.
What are the contribution rates?
Employees and employers who are covered under the MPF scheme are each required to make regular mandatory contributions to the MPF scheme. These mandatory contributions are calculated at 5% of the employee’s relevant income to an MPF scheme and is subjected to the minimum and maximum relevant income levels. For a monthly-paid employee, the minimum and maximum relevant income levels are HKD71,00 and HKD30,000 respectively.
The mandatory contribution rates for an employer and employee are as follows:
For employees with monthly relevant income below HKD7,100 employer contributes 5% of the relevant income while employee does not have to contribute.
For employees with monthly relevant income between HLD7,100 to HKD30,000, both the employer and employee contributes 5% of the relevant income.
For employees with monthly relevant income more than HKD30,000 both employer and employee contributes HKD1,500.
Employers in the construction or catering industry are required to calculate contributions for casual employees under Industry Schemes. More information on the calculation of these contributions can be found here.
Withdrawal of accrued benefits – what happens at age 65?
Given that the MPF fund is designed to help the workforce save for retirement, members are only allowed to withdraw the accrued benefits derived from mandatory contributions and tax deductible voluntary contributions at the age of 65. These benefits can be withdrawn in a lump sum or by instalments.
However, there are specific circumstances where accrued benefits may be withdrawn before a member reaches 65. Such situations includes early retirement, permanent departure from Hong Kong, total incapacity, terminal illness, and death.
The MPF scheme is a comprehensive retirement fund designed by the Hong Kong Government to help its citizen tides through their retirement days. To find out more about MPF and how it may affect you as an employee or employer, visit their website here.