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The Mandatory Provident Fund, the compulsory retirement scheme that covers 4.7 million residents, had amassed assets worth HK$1.11 trillion as of March 31. Photo: Jonathan Wong

More Hong Kong workers make voluntary contributions to MPF as returns shrink by 21 per cent

  • Mandatory Provident Fund assets drop from HK$1.12 trillion a year ago to HK$1.11 trillion in financial year ending on March 31
  • Fund authority reveals number of voluntary contribution accounts rose nearly 10 per cent to 68,000 in 2022-23

More Hong Kong workers have made voluntary, tax-deductible contributions to their mandatory pension accounts in the past financial year than during the previous one, while the net returns of the scheme shrank 21 per cent due to market volatility.

The Mandatory Provident Fund (MPF), the compulsory retirement scheme that covers 4.7 million residents, had amassed assets worth HK$1.11 trillion (US$142 billion) as of March 31, compared with HK$1.12 trillion a year ago, according to the operator’s annual report released on Sunday.

The Mandatory Provident Fund Schemes Authority revealed the number of voluntary contribution accounts rose by nearly 10 per cent to 68,000 in 2022-23, while the total amount paid in jumped one-third to HK$8.59 billion from a year ago.

Mandatory Provident Fund Schemes Authority chairwoman Ayesha MacPherson Lau has promised to reform the system to maximise workers’ benefits. Photo: Jonathan Wong

These payments are tax-deductible and employees can choose to contribute any amount at any time. But the money cannot be retrieved until they turn 65 unless conditions on statutory grounds for early withdrawal are met.

“If you contribute voluntarily to the MPF, you have to be careful,” said Simon Lee Siu-po, economist and senior lecturer in accounting and financing at Chinese University.

“Yes, the tax deduction is good, but if you lose on the MPF return, that could be very bad. Success really depends on whether the person understands the mechanism.”

The tax deductible contributions could help members save up to HK$10,200 per year in tax, a ccording to MPF Rating’s chairman Francis Chung.

“Top-ups via the tax deductible contribution accounts need to remain in the system until retirement, but it effectively pays MPF members to save for retirement ,” he said. “Such incentives are crucial to empower MPF members to be proactive in saving for their own retirement.”

Authority chairwoman Ayesha Macpherson Lau said it had promised to reform the system to maximise workers’ benefits.

“In order to respond to people’s aspirations for better retirement protection, the [authority] has pursued continual reforms, including improving the investment framework and reducing fee levels, so that the MPF system can better meet the expectations of scheme members and deliver better retirement outcomes for them.”

Launched in December 2000, the MPF requires companies and workers to contribute 5 per cent of monthly salaries, capped at HK$3,000 in total, although employees can choose to put additional funds into their accounts.

Hong Kong ‘to launch e-MPF platform in 2024 and make fully operational 1 year later’

In 2022-23, HK$851 billion, or 77 per cent, came from contributions of employers and employees.

The remainder was net investment returns, which stood at HK$258 billion, down 21 per cent from 2022. But in the first half of 2023, the pension scheme reported its best first-half results in two years.

The authority said it inspected 929 employers, issued 346,700 payment notices about lack of contributions and recovered HK$145 million for 96,600 employees in 2022-23.

The pension system, which has been criticised for high fees charged by fund managers, saw its average fund expense ratio reduced by 37 per cent to 1.33 per cent in 2022-23 from 2.1 per cent in 2007 when the benchmark was introduced.

Hong Kong’s pension fund boosts members’ kitty with HK$32.2 billion profit

The authority is set to introduce a one-stop digital platform for the pension scheme in 2024, a year late.

The platform will show all the employees’ contribution accounts, performances, fees and investment options of fund management companies. The transparency could result in the average MPF administration fee being cut by up to 30 per cent two years after its launch and by about 50 per cent eight years after that.

Secretary for Labour and Welfare Chris Sun Yuk-han told legislators in March that scheme members could benefit from combined cumulative cost savings of about HK$30 billion to HK$40 billion during the first decade.

Lau said the e-platform attracted international interest when the Organisation for Economic Co-operation and Development invited the authority to share its experiences.