The MPF (Mandatory Provident Fund) has been started for almost twenty years with around 99% of employers and employees in Hong Kong joining the scheme. Although there is a high participation rate, it’s very likely that only the human resource professionals know the regulations of the programme well while regular employees couldn’t even remember how many MPF accounts they have. Recently, the MPFS (Mandatory Provident Fund Schemes Authority) finished the quadrennial minimum and maximum relevant income levels review and here we are going to list down the concerns coming from an HR point of view.

The new proposal of MPF scheme

The MPFS suggests raising the minimum income levels of regular MPF contribution from $7,100 to $8,200 after the review. If the proposal is approved, employees who have wages lower than $8,200 do not have to contribute into their own MPF accounts while their employers still need to contribute 5% of wages into the employers’ MPF accounts.

The maximum income levels of regular MPF contribution will be raised from $30,000 to $48,000. There will be two stages of the raising progress for adaptation. In the first two years, the relevant maximum income levels will be increased by $9,000, to $48,000. Both employers and employees had to contribute $1,500 each now for employers having monthly salaries higher than $30,000. If the proposal is accepted, employees with monthly salaries between $8,200 and $48,000 need to submit 5% of their salaries with their employers’ 5% into the MPF account. The maximum contribution limit of employees having monthly salaries higher than $48,000 is $2,400.

The MPFS states that the new MPF contribution limits are defined according to the median income. The new proposal is submitted to the government already and if it is approved, the new rules can be practised in the next year after reviewing and revising by the Legislative Council. Around 500,000 employees with monthly salaries higher than $30,000 would be affected.

Effects of the new proposal

Employees have different comments on this proposal. Some think that the return rate of MPF is too low so the government should promote other retirement protection schemes instead of MPF, but most of them do not feel much about this new proposal.

However, this proposal leads to a big problem for the employers. To those who are employing a large number of part-time labourers, they can save little contributions. Nevertheless, the changes to the maximum income levels of regular contribution mean a rise of $900 (maximum) contribution to each employee’s account. The adjustment brings a bigger burden to employers. Most of the employers and businessman oppose this new proposal strongly.

Add to that the government’s plan to revise the “offsetting of MPF” programme recently, which would also increase the employers’ contributions. The burden of employers will be magnified at once by the revision of these two rules. Although there will be adaptation period provided, a human resources consultant suggests that the government can exercise some tax deduction during the period to lower the employers’ stress.

What is “offsetting of MPF”?

“Offsetting of MPF” is where employers can use their MPF contributions into employees’ accounts to offset the long service payment or severance payment. Under the “Employment Ordinance”, if employees who are employed more than 24 months under a continuous contract or employed more than 5 years under a continuous contract were dismissed in an unwilling environment, their employers may need to pay two-thirds of the monthly salary times working years as the employees’ severance payment and long service payment respectively. The amount is limited to a maximum $390,000. With this policy, employers can offset the long service payment and severance payment paid to the employees with accrued benefits derived from the employer’s contributions. In other words, the employee can only receive 1. Employer’s contributions or 2. Long service payment or severance payment, one with a higher amount.

This system lowers the business spending. However, the government just told the employers and employees the initial plan of cancelling the “offsetting system” on 29th March. If the plan is approved, there are about 3 million employees’ receivable payments that will not be offset anymore. Since the rough plan has already dissatisfied a lot of businessmen especially the SMEs, the government had also set a 12 years adaptation period for which the government will provide a subsidy. According to a government analysis, half of all companies with less than 10 employees can afford the payment 10 years after cancelling the offset system.

Although the plan puts more burden to business owners, an interview with the Hong Kong Institute of  Human Resources Management shows that around 65% of HR professionals support cancelling the “offset system”. The reasons are most of the enterprises want to provide better welfare for their employers to gain a better reputation. That is also the reason why HR consultants have suggest more ways to deal with the problem, such as the employers increasing 20% of their contributions with the MPF system now and the government pays the rest to give more protection for retired employees, or add a tax deduction plan with the new proposal. Meanwhile, others argue that the offsetting of severance payment should be cancelled but the offsetting of long service payment should be retained.

In conclusion, MPF may not be a satisfying retirement protection. The major concern to MPF is it has a high administrative fee with a low return rate so a major question is how to raise the return rate such that it is higher than the inflation rate? While improving the MPF regulations, the government also launched the details of Life Annuity Scheme as another new retirement programme without an administrative fee. Do not hesitate to consult if you have any further questions!