What is MPF in Hong Kong: A Guide

What is MPF in Hong Kong: A Guide

What is MPF in Hong Kong: A Guide

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Table of Contents

Introduction

You might have asked, “What is MPF?” if you are in Hong Kong. Here is a guide on what is MPF.

Plans for retirement savings are a crucial component of the benefits package for employees. 

Due to the ageing population, Hong Kong’s citizens are required to enrol in a Mandatory Provident Fund (MPF), a mandatory government retirement program, which was put into place in December 2000.

What is MPF?

In the US and Canada, MPF is the 401K pension fund’s counterpart. The Mandatory Provident Fund Schemes Authority (MPFA), which was established in September 2000, is responsible for enforcing the MPF set of mandatory savings programs for working people in the Hong Kong area.

According to the MPFA, an MPF scheme will be applicable to:

  • Regular employees: between the ages of 18 and 64 who have been given a job with a minimum 60-day contract.
  • Casual employees: who work in the construction or catering industries on a temporary basis or for a fixed term of less than 60 days, and who are between the ages of 18 and 64.
  • Self-employed: individuals who work for themselves and carry out tasks other than those of an employee. Partnerships and sole proprietorships are categorized as self-employed (persons)

Global companies operating in the region may be required to register with and make contributions to a scheme in order to comply with these regulations and make sure their employees have the proper retirement plan in place.

Here is the Hong Kong government information on MPF.

What is MPF: Historical Context of the MPF

The MPF scheme wasn’t actually put into effect until 2000, after the enactment of the following:

  • the August 1995 adoption of the Mandatory Provident Fund Schemes Ordinance; and
  • the March 1998 adoption of the Provident Fund Schemes Legislation (Amendment) Ordinance.

The governing body that is in charge of ensuring the availability of the various MPF programs available is the Mandatory Provident Fund Authority (MPFA). They also make sure that trustees don’t break any laws.

Employers who do not adhere to the legal requirements will be charged a fine. Alternatively, based on the nature of the non-compliance and the severity associated with it, they might be prosecuted.

What is MPF in Hong Kong: A Guide
Mandatory Provident Fund Schemes Authority logo. Image from Fintech Association of Hong Kong.

What is MPF: MPF Schemes Offered in Hong Kong

Master Trust Scheme

The best option for small to medium-sized businesses and the most typical kind of MPF in Hong Kong is the master trust scheme.

It is made available to workers who hold multiple jobs, self-employed individuals, and former employees who have accrued savings benefits from their working service.

The pension contributions from participating members are combined in this scheme at various levels of risk, giving investors more options.

Employees of participating employers, independent contractors, and individuals with accrued benefits from other programs are all eligible to participate in this type of program, which is the most prevalent.

As said, Master Trust Schemes combine contributions from numerous employers and their employees, as well as contributions from self-employed individuals. Because of economies of scale, master trust schemes have a high level of efficiency in terms of scheme administration.

Employer-Sponsored Schemes

The employer-sponsored program is designed for larger companies that can provide their employees with their own savings plans. This contrasts with the master trust scheme, which combines funds with other businesses. The employer-sponsored plan, meanwhile, is limited to the particular choices provided by the business.

This is only available to staff members of a single employer and its affiliated businesses.

Running an employer-sponsored plan is only affordable if the business has a large number of employees due to the membership restriction.

Industry Schemes

For businesses in the construction and catering industries, this plan is the ideal choice. It’s also ideal for businesses that need casual, remote, or temporary workers who are not employed by just one company.

The MPFA created this plan especially for these employees to make sure they wouldn’t miss out on retirement income.

This is specifically made for workers in the construction and catering industries, especially casual workers, or those hired on a daily basis or for a fixed period of less than 60 days.

If casual employees switch jobs within the construction and catering industries, they are not required to switch schemes as long as both their new employer and their previous employer are members of the same industry scheme.

What is MPF: MPF Funds Offered in Hong Kong

MPF Conservative Fund

  • Objective: To achieve a rate of return comparable to the savings rate for Hong Kong dollars
  • Financial Instruments: Bank deposits and bonds with a short maturity date
  • Risks: Relatively low
  • Administrative Fee: If the rate of return for a given month is less than or equal to the MPFA’s Prescribed Savings Rate for that month, trustees are not permitted to charge any administrative fees.
  • Suitability: Members of the scheme who take prudent risks and are approaching retirement in particular
  • Features: Each MPF scheme must provide at least an MPF Conservative Fund, according to the law. Low risk, but returns could fall short of inflation or even turn negative. Generally referred to as a money market fund in the trustees’ released Fund Fact Sheet.

Money Market Fund

  • Objective: To generate a rate of return that is superior to short-term certificates of deposit or bank deposits
  • Financial Instruments: Commercial papers, government bills, or short-term bank deposits
  • Risks: Relatively low
  • Administrative Fee: Charged as a percentage of the net asset value of the fund.
  • Suitability: Close to retirement-age individuals or low-risk bearers
  • Features: Reasonably stable. This kind of investment vehicle can be used to manage cash that is not currently invested while generating interest income.

Guaranteed Fund

  • Objective: To guarantee the return on investment or to generate a guaranteed rate of return
  • Financial Instruments: Securities such as bonds, stocks, or short-term money market instruments that bear interest
  • Risks: Low relative (but also depends on the guarantee conditions)
  • Administrative Fee: In addition to the standard fees and charges typical of other MPF funds, the guarantor typically levies a guarantee fee or reserve fee.
  • Suitability: Members of the scheme who are risk averse and are willing to abide by the guarantee conditions, especially those who are nearing retirement.
  • Features: Capital guarantees and return guarantees are the two main categories of guarantees. All guarantee requirements, including the minimal investment period and withdrawal constraints, must be satisfied in order to be eligible for the guarantee. The terms and conditions of each fund must be carefully read by scheme participants.

Bond Fund (Also known as Fixed income Fund)

  • Objective: To generate a steady source of income from interest and the coupon rate on bonds, as well as to profit from bond trading
  • Financial Instruments: Bonds
  • Risks: Low to Medium; those looking for a consistent return over the long term
  • Administrative Fee: The fee typically represents a portion of the net asset value of the fund.
  • Suitability: Members of a moderately conservative scheme who have a low risk tolerance
  • Features: The bonds must satisfy the MPFA’s minimum credit rating or listing requirements.

Mixed Assets Fund (Also known as Stable Fund, Balanced Fund, Life-Cycle Fund, Growth Fund)

  • Objective: Long-term capital appreciation can be attained by investing in a mix of stocks and bonds.
  • Financial Instruments: Stocks and Bonds
  • Risks: Medium to high
  • Administrative Fee: The fee typically represents a portion of the net asset value of the fund.
  • Suitability: At various stages of their lives, scheme participants can change the ratio of stocks to bonds in their portfolios.
  • Features: Stocks and bonds are distributed differently among various Mixed Assets Funds. A higher percentage of stocks is typically correlated with higher risk.

Equities Fund

  • Objective: To long-term capital growth and a return that is higher than inflation
  • Financial Instruments: Stocks
  • Risks: High; level of tolerance; and other participants in the risk-tolerant scheme
  • Administrative Fee: The fee typically represents a portion of the net asset value of the fund.
  • Suitability: Young scheme participants who are more risk-averse and have longer investment horizons
  • Features: Equity Funds typically come in one of three flavors: local, regional, or global. They primarily invest in stocks listed on stock exchanges that the MPFA has approved.

Others (Index Fund)

  • Objective: To achieve a rate of return that is comparable to the market index that the fund mimics
  • Financial Instruments: For instance, stocks. The weightings of the constituent stocks of the market index that the fund replicates are reflected in its investment portfolio.
  • Risks: Medium to High
  • Administrative Fee: Due to less frequent trading, which translates to lower fees & charges than other funds, the relevant index’s constituent stocks would be purchased and sold within the fund in accordance with their respective weightings in the index.
  • Features: The fund’s investment is restricted to the stocks that make up the market index it replicates, so its performance is largely consistent with that of the underlying market index.
What is MPF in Hong Kong: A Guide
Make contributions to retirement fund in Hong Kong through MPF. Image from Asia Asset Management.

What is MPF: Obligations to Maintain Compliance with MPF for Your Hong Kong Business

If your international company employs people in Hong Kong, you should implement the proper MPF plan to protect yourself from potential pitfalls, severe penalties, and exorbitant fines.

An easy-to-read summary of your company’s duties is provided below:

  • Employees based in Hong Kong should be enrolled in an MPF plan.
  • to the MPF trustees on time with the required contributions
  • Don’t give MPF trustees or the MPFA any false or misleading information.
  • give workers access to monthly pay stubs
  • When an employee’s employment ends, notify the MPF trustees in writing.
  • Updates to employer information should be communicated to MPF trustees in writing.

Enrollment in an MPF Scheme for Your Employees

Employers in Hong Kong are required by law to enrol their workers in an MPF program.

Here is a quick summary of what you need to be aware of, but IRIS FMP is fortunately prepared to support and direct you with your MPF employee enrollment needs and procedures:

  • first and foremost, consider the needs of your employees
  • locating and enrolling both full-time and part-time staff members between the ages of 18 and 64 who have worked continuously for 60 days or more in an MPF within the first 60 days of their employment
  • Criteria for the exempt person

Exemptions from the MPF Contribution

Some employees will be exempt from the Mandatory Provident Fund despite all these different plans and fund types.

These are:

  • those who were employed or self-employed and turned 64 before December 1, 2000;
  • domestic helpers;
  • hawkers who work for themselves
  • those who are covered by statutory pension or provident fund plans, such as public employees and teachers who receive grants or subsidies;
  • participants in occupational retirement plans who have been issued exemption certificates;
  • foreigners who come to Hong Kong for a maximum of 13 months and work or self-produce there;
  • foreigners who enter Hong Kong for work or self-employment and who are enrolled in overseas retirement plans; and
  • employees of the European Commission’s Hong Kong office for the EU.

Deadline and Procedures for Enrollment

Within the first 60 days of employment, you must enroll full-time and part-time workers between the ages of 18 and 65.

Keep in mind that the 60-day employment rules refer to the length of the employment relationship with the new hire. As a result, it has no effect on how many working days there are. 

The employee won’t need to be enrolled in a Mandatory Provident Fund scheme at all if their employment ends before their 60th day of employment.

What happens if the 60th day of employment falls on a Saturday, Sunday, a public holiday, a gale warning day, or a day with a black rainstorm warning?

The deadline for enrolling will then be extended to end on the day after; the days before those are excluded.

As an illustration, Chloe is a recent hire at your company as an executive. 15 October 2021 marks her first day of work (Thursday). Since she will have worked for 60 days after her first day of employment, you must enroll her in the MPF Scheme by Tuesday, December 14, 2021.

What if Chloe’s first day of work is October 20, 2021, a Tuesday? The enrollment deadline would then move from December 19 to December 21, 2021. This is due to the fact that December 19 and December 20 of 2021 are on different weekends.

What if there is a probationary period (typically 3 months or 90 days) for new employees?

The employment and enrollment rule of 60 days is still in effect. By the employee’s 60th day, you, the employer, must enroll them.

You must submit an enrollment form for the chosen MPF scheme in which your business is enrolled in order to enroll an employee. The employee will then have to:

  • Indicate their preferred investment portfolio,
  • Give personal information, and
  • Give a self-certification that includes information about tax residency, i.e., whether the person is a tax resident outside of Hong Kong.

In order to set up your employee’s MPF account, you must then give your trustee the completed form.

What To Do Should Your Employee Not Want to Cooperate

What will happen if your employee fails to fill out the enrollment form? The incomplete enrollment form must still be delivered to your trustee by the deadline. This is to make sure that you’ve complied with your duty as an employer.

Voluntary Contribution

A maximum mandatory contribution of $1,500HKD, or 5% of an employee’s monthly income, may be viewed by some employees and employers as being inadequate for a retirement plan. In light of this, they might want to voluntarily contribute more.

Voluntary contributions, as opposed to required contributions, are frequently determined and defined in accordance with the enrolled scheme’s rules. Employers should speak with their MPF trustees for specific information on how to make voluntary contributions under your selected plan.

Once a settlement has been reached, voluntary contributions can be agreed upon by both employers and employees. According to their gross or net salary, this may be determined (after the mandatory contributions have been made).

Example of Voluntary Contribution on Gross Income

Chloe’s employer has made the decision to go above and beyond and make voluntarily contributions. They have decided to voluntarily contribute 5% of her gross monthly income as a result of their decisions.

The Employer Voluntary Contribution will also be $1,500 HKD if Chloe earns $30,000 HKD and her employer already contributes $1,500 HKD as required by law.

Example of Voluntary Contribution on Net Income

Additionally, Nicholas’ employer has chosen to go above and beyond by offering voluntarily made contributions. They have decided to voluntarily contribute 5% of his net income as a result of their decisions.

Let’s assume that Nicholas makes $55,000 HKD after the required contributions. A $2,750 HKD voluntary contribution from the employer is required (55 000 x 5% = 2,750).

Nicholas will make a voluntary contribution of $2,750 HKD if he also makes an employee voluntary contribution equal to 5% of his net salary. Then, his total net pay will be $52,250 HKD.

Please keep in mind that the examples given above are of straightforward voluntary contributions. Depending on the circumstances, there may be instances where both parties have an agreement to provide a combination of voluntary percentage-based or fixed-sum contributions.

What is MPF in Hong Kong: A Guide
MPF Contributions. Image from Workstem.

Contribution Holiday

A contribution holiday will be in effect for new hires who have been unemployed for 60 days or longer. They won’t be required to pay the required MPF contributions in this situation.

In accordance with MPFA, the first contribution must be made to the trustee no later than the 10th day following the end of the month in which the employee’s 60th day of employment falls.

Consider Nicholas, a recent hire who started working for your company on September 5th, 2021.

Nicholas’ employer is required to start making employer contributions as soon as he starts working. The employer will then be required to make their first Employer Mandatory MPF Contribution for Nicholas by December 10, 2021, assuming a 60-day MPF Contribution Holiday.

Nicholas, however, is exempt from paying employee contributions for the first 30 days of his employment as well as the first incomplete wage period because he started on September 5th. Since the time frame typically lasts up to 60 days for the majority of businesses, the phrase “60-day MPF Contribution Holiday” is one that is frequently used. Nicholas will have to make his first Employee MPF contribution in the following month by December 10th, 2021, after the contribution holiday expires.

Making Contributions on Time for Employees

Now that you are aware of the contribution rates and the contribution holiday, you have probably noticed that it was stated here that the contributions must be made by the tenth day of the following month.

For regular employees who are paid on a monthly basis, an employer is required to make the required contributions on the tenth of each month.

The contribution day will extend to the next succeeding day which isn’t any of the days mentioned above if the contribution day is a Saturday, Sunday, a public holiday, a gale warning day, or a day with a black rainstorm warning.

Cessation of Employment

A few things must be done by the employer after an employee leaves the company, whether through termination or resignation. The first would be to set up a final contribution, and the second would be to inform the trustee that your employment has come to an end.

Final Contribution

You must also make arrangements for the departing employee’s final required MPF contribution in accordance with MPFA requirements. That must be submitted along with those of the other employees on or before the following month’s contribution deadline.

Notice of Termination

Due to MPFA regulations, it is crucial that you promptly inform your trustee if an employee leaves the company so that the employee’s account records can be updated. After all, you want to protect your business from being labeled a defaulter and future consequences.

You can inform your trustee of a departing employee in one of two ways:

  • The first is to include information about the employment termination on the remittance statement. In this situation, be sure to complete the necessary fields and submit the remittance statement with your required contributions. The tenth day of the following month is the cutoff date for notifying your trustee.
  • Additionally, you can give the trustee written notice. A “Notice of Termination” form may be available from some trustees for your use. In conclusion, ask your trustee what approach is best to take in situations like these.

Common Offenses and MPFA Penalties

Companies (and people) found to have been careless in their obligations due to improper MPF planning and diligence face severe penalties.

In addition to financial penalties, those who violate these laws risk being imprisoned.

If an employee believes their employer is violating their MPF rights, they also have the option to file a complaint with the MPFA.

The types of employer non-compliance offenses and their corresponding penalties are listed below.

The MPFA may impose the following criminal penalties on employers who violate its rules:

  • Failure to enroll employees in an MPF scheme: Maximum of $350,000 and three-years’ imprisonment
  • Failure to pay mandatory contributions to MPF trustees (having deducted 5% from employees’ relevant income): Maximum penalty of $450,000 and four-years’ imprisonment
  • Failure to pay mandatory contributions to MPF trustees (without deducting 5% from employees’ relevant income): Maximum of $350,000 and three-years’ imprisonment
  • The provision of false or misleading information to MPF trustees or MPFA: Maximum of $100,000 and one-year’s imprisonment on first conviction; and Maximum penalty of a $200,000 and two-years’ imprisonment on each subsequent conviction.

The MPFA may impose financial sanctions on employers for noncompliance in the following cases:

  • Failure to pay mandatory contributions to MPF trustees on time: $5,000 or 10% of the amount due (whichever is greater)
  • Failure to provide monthly pay records to employees (except for casual employees participating in Industry Schemes): $10,000 – first failure; $20,000 – second failure; $50,000 – subsequent failures
  • Failure to notify MPF trustees in writing of an employee’s termination of employment (with the exception of casual employees participating in Industry Schemes):  $5,000 for the first failure; $10,000 for the second failure; $20,000 for the subsequent failures
  • Failure to notify MPF trustees in writing of employer information updates, such as company name, address and telephone number: $5,000 for the first failure; $10,000 for the second failure; $20,000 for subsequent failures

Employer contributions that are late must be reported by MPF trustees to the MPFA. Following that, MPFA will send these employers payment notices:

  • Notice of failure to pay MPF trustees mandatory contributions on time: Issued payment notice to employers to recover the default contributions with a 5% surcharge of the default amount.

Is MPF mandatory in Hong Kong?

Mandatory contributions to an employee’s MPF account must be made by both employers and employees. Subject to a minimum and maximum caps, this must be at least 5% of the employee’s relevant income.

Additionally, self-employed individuals must make contributions equal to 5% of their relevant income. You may elect to make additional voluntary contributions to top off your account in addition to the required MPF payments.

Is MPF taxable in Hong Kong?

A tax deduction for employee contributions to an MPF plan is allowed, up to a maximum of 18,000 HKD. The specifics of the payment and MPF scheme will determine whether or not voluntary contributions are tax deductible.

How to Withdraw MPF When Leaving Hong Kong

Of course, a lot of people won’t begin withdrawing their MPF funds until they reach retirement. What happens, though, if you relocate? You might be qualified for an early withdrawal from MPF Hong Kong in this situation.

Only if you’re leaving Hong Kong permanently is early withdrawal possible. You must have already left the country or be planning to do so soon, and you must declare that you will not come back to Hong Kong to work or establish a permanent residence there.

It’s important to keep in mind that if you withdraw your money and then reapply to your provider for the same reason with a later departure date, MPF won’t receive payment again.

To withdraw money, you must submit an application to the relevant MPF scheme and must include the following information:

  • Identity proof (such as your HKID card)
  • Claim form for MPF payment due to permanent departure from Hong Kong
  • Statutory declaration form attesting to your departure for good
  • Documentary proving your right to live somewhere other than Hong Kong

Final Thoughts

I hope this article has given you a better understanding of MPF and the various offered schemes.

Why not speak with an expat advisor if you’re still perplexed about how you’ll manually calculate and keep track of the MPF contributions for each of your employees?

After all, we automate the MPF calculations and make processing payroll month after month a breeze. You’ll spend less time on payroll calculations and more time on the things that are really important.

Pained by financial indecision? Want to invest with Adam?

Adam is an internationally recognised author on financial matters, with over 492.2 million answers views on Quora.com and a widely sold book on Amazon

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