Make voluntary payments tax-deductible, say advisers
Government advisers have called for voluntary contributions to the Mandatory Provident Fund to be made tax-deductible to encourage people to save more than the minimum towards their old age.
With the stock market booming and investor confidence growing, more voluntary contributions are being paid into the MPF, on top of the 5 per cent of monthly salary, up to a maximum of HK$20,000 of salary, required under the scheme. For someone earning HK$20,000 or more a month, the contribution is HK$1,000.
Only the compulsory deductions up to the maximum HK$1,000 a month are now tax-deductible.
Voluntary contributions as a proportion of total funds in the scheme rose to 11.06 per cent at the end of the third quarter, from 9.85 per cent at the end of last year.
This coincides with an 8.03 per cent rise in the average value of the scheme's funds so far this year, according to figures supplied by ratings agency Standard & Poor's.
Nelson Chow Wing-sun, chairman of the Mandatory Provident Fund Advisory Committee, said voluntary contributions should be tax-deductible provided total contributions did not exceed 5 per cent of a person's income. If a person earning HK$50,000 a month contributed 5 per cent - that is, a voluntary HK$1,500 on top of the mandatory HK$1,000 - they should be allowed to deduct the entire contribution from tax, Professor Chow said.
A government spokesman said: 'The suggestion that employees' and self-employed persons' voluntary contributions to MPF schemes should also be deductible for calculating tax would affect the existing tax policy and have wide implications. It should be studied separately in greater detail.'
Bob Charles, head of Asia-Pacific retirement benefits consulting for financial consultancy Watson Wyatt, said Hong Kong was an anomaly in not giving tax breaks for people making voluntary contributions to their pension schemes.
'Hong Kong is generally underprovided for in retirement savings, and extending the MPF on a mandatory basis is probably not feasible from a business point of view, so making voluntary contributions as attractive as possible is an important step.'
Mr Charles, whose company advises the government on the mandatory pension scheme, also said the administration should change the rules to stop people taking out their voluntary contributions before retirement. Some MPF funds allow voluntary contributions to be withdrawn at will.
