Encourage Hong Kong employees to raise voluntary MPF contributions with tax incentives, says advisory body

Employees contributing to Hong Kong’s Mandatory Provident Fund should be given tax incentives to encourage them to increase their contributions, according to a report released by the Financial Services Development Council on Thursday. This will help plug the gap between contributions and retirement needs.

While employers in the city are entitled to tax deductions on up to 15 per cent of an individual employee’s total pay in a tax year, employees are not offered any such incentives. Only their mandatory contributions are tax deductible.

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“Employees should be provided with similar incentives. While still required to pay their mandatory contributions, employees should have the option of topping up tax-efficient voluntary contributions to an aggregate total of 15 per cent of their relevant income,” said the report.

Contribution to the MPF scheme, which began in 2000, is compulsory for 2.8 million Hongkongers and their employers, with both sides contributing at least 5 per cent of an employee’s monthly salary. This contribution is capped at a combined HK$3,000 (US$382).

The Hong Kong government has been considering raising the amount of employees’ pension contributions that can be used toward offsetting their tax bills from HK$36,000 to HK$60,000, with the aim of boosting public participation in deferred annuity schemes and voluntary MPF contributions.

The council’s recommendations aim to increase tax-deductible income from 5 per cent to 15 per cent of annual income.