eNewsletter

The HK government is proposing an increase in contributions to the Mandatory Provident Fund (MPF), HK’s universal retirement protection system.  Currently, around 87% of Hong Kong’s workforce is covered by the MPF.  Due to an aging HK population, the government must increase taxes and MPF contributions in order to avoid government bankruptcy.  Thus, both employers and employees will be required to make bigger contributions to the MPF.

Under the current MPF system, the employer and the employee are each required to contribute 5% of the employee’s salary to an MPF fund.  The lower and upper monthly income limits are HK$5,000 (US$643) and HK$20,000 (US$2,572) per month, respectively.  The new proposal calls for a 50% increase in the upper income limit of the MPF.  

The new MPF proposal would increase the previous thresholds to HK$5,500 (US$707) and HK$30,000 (US$3,858) per month.  This means workers within the range of HK$5,500 and HK$30,000 per month will still simply contribute 5% of their salary.  However, workers who earn less than HK$5,500 are not required to contribute to the fund (though their employers are still required to contribute 5%) and workers who earn over HK$30,000 will make contributions fixed at 5% of HK$30,000, or HK$1,500.  

This MPF threshold increase, coupled with the new HK minimum wage law ($3.60), will place extra financial burden on both foreign and local companies.  Hong Kong trade groups have expressed concerns about this new reform, particularly its potential impact on small and medium sized companies.  The increase in the MPF salary ceiling will not be welcomed, as many higher-income employees would prefer to invest their retirement money themselves rather than make MPF contributions.  Under the current MPF system, employers choose from approximately 20 MPF investment funds to invest in.  However, a new “Employee Choice” system allowing employees to choose their funds may be implemented in coming years, should the government approve it.