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SCMP Reporter

New retirement plan for staff
Voluntary contributions to the Mandatory Provident Fund (MPF) scheme could be made tax free under a plan to encourage employees to save and invest more for their own retirement.
Employees would be able to claim tax deductions for up to 15 per cent of their salaries contributed to the scheme under one option that is being considered.
Some MPF Schemes Authority members hailed the plan, saying the government would also reap the benefit eventually because it could help reduce its spending on medical or welfare services for retirees.
The MPF was launched in December 2000 and applies to salaries from HK$5,000 to HK$20,000 a month. Employers and employees are required to each pay 5 per cent of a staff member's monthly salary - up to HK$1,000 each per month.
Employees can choose to contribute more than the required 5 per cent. But only mandatory contributions are tax deductible.
Figures by the Inland Revenue Department showed that in 2005-06, about 760,000 taxpayers were allowed deductions for contributions to recognised retirement schemes. The total amount of deductions was HK$7.4 billion.
An option being considered is to allow a taxpayer to claim a deduction for voluntary contributions of up to 10 per cent of his monthly salary. With the 5 per cent mandatory contributions that are now already tax free, an employee could invest up to 15 per cent of his salary tax free.
But the employee could only access the accrued benefits from the tax-free contributions at the age of 65, along with the mandatory contributions. At present, voluntary contributions can be withdrawn at any time.
There are also plans to raise the salary ceiling for mandatory contributions from HK$20,000 to HK$30,000.
MPF Schemes Authority chairman Henry Fan Hung-ling, speaking after a forum yesterday, said making voluntary MPF contributions tax free was an idea worth pursuing. Mr Fan, an executive councillor, also said more MPF providers were expected to cut management fees for their funds.
An authority spokesman yesterday declined to discuss the plan, saying it was up to the government to decide what to do.
A spokeswoman for the Financial Services and Treasury Bureau said it was premature to discuss the topic at this stage.
Legislator Wong Ting-kwong, a non-executive director of the authority, said: 'The financial implication for the government is nominal. But it can help save a lot of money for the government in the long run, because people can rely more on their retirement savings to pay, say, medical fees.'
Legislator Tam Yiu-chung, another non-executive director, expressed similar views and said the government should proceed with the plan as soon as possible.
But Leung Fu-wah, a member of the MPF Schemes Advisory Committee, said more careful consideration was needed to avoid possible abuse.
Chan Yan-chong, associate professor at City University's department of management sciences, agreed the move could encourage  people to save more for retirement, but said there was a need to set proper limits for which tax deductions could be claimed.
Without such limits, high-paid employees might choose to contribute more of their salaries to the scheme in a bid to avoid salaries tax, Dr Chan said.



Voluntary MPF payments may be made tax free