The Hong Kong Mandatory Provident Fund (“MPF”) Schemes has been in place since 2000 and as at December 2011, 85% of the total workforce in Hong Kong are covered under different retirement schemes.
Pursuant to the MPF Schemes Ordinance, the Government has reviewed the MPF and is taking steps to amend the MPF Schemes in line with the interests of existing and potential scheme members.
1. Amendment of Maximum Level of Relevant Income for Contribution
Under the MPF Schemes Ordinance (the “Ordinance”), the employee’s contribution to the MPF is only mandatory if the employee earns the minimum of HK$6,500 per month. The maximum income is set at HK$20,000. Employees and self-employed persons whose income is at or above the minimum level are required to contribute 5% of the relevant income to the MPF Scheme. Employers will need to contribute 5% of the employee’s relevant income whether the employee’s relevant income has reached the minimum level or not.
The maximum amount of mandatory contribution by the employer or the employee is currently set at HK$1,000 each. Contribution in excess of the ceiling can be made voluntarily.
With effect from 1 June 2012, the following changes will be implemented :-
(a) For monthly-paid regular employees, the maximum level of relevant income has been raised to HK$25,000 monthly. Therefore, the maximum amount of mandatory contribution will be adjusted to HK$1,250 per month.
(b) For self-employed persons, the maximum level of the relevant income has been amended from HK$20,000 to HK$25,000 monthly and from HK$240,000 to $300,000 yearly. The maximum amount of mandatory contribution will be adjusted from HK$1,000 to HK$1,250 monthly and from HK$12,000 to HK$15,000 yearly respectively.
2. Transfer of Accrued MPF Benefits
Under the current regime, employees must open an account with the MPF provider selected by their employers. The employees may only transfer their accrued benefits to a preserved account of another MPF provider of their choice upon the termination of employment. This has given rise to concerns about the rights of employees to control their accrued MPF benefits and to enhance their retirement protection.
In 2009, the MPF Schemes (Amendment) Ordinance was passed (“2009 Amendment”) and is expected to come into force in November 2012.
The following changes will give greater flexibility to employees to transfer and manage their accrued benefits :-
(a) the employees can transfer accrued benefits derived from any mandatory contributions made by them in respect of their current employment to a personal account of a MPF provider. There is a limit of one transfer per year;
(b) the employees can transfer their accrued benefits from the mandatory contributions of their former employment(s) account to another account of a MPF provider of their choice; and
(c) the transferor MPF provider will no longer be required to obtain consent from the MPF Schemes Authority before it can transfer the accrued benefits of an employee in specified circumstances.
3. Withdrawal of MPF Benefits
There is also a proposal in relation to the withdrawal of the MPF accrued benefits, which was in consultation until 31 March 2012.
Currently, the accrued benefits may be withdrawn when the employees reach the age of 65 or at a later date in one lump sum. If the employees would like to withdraw earlier, it may only be done in the following circumstances :-
(a) Early retirement;
(b) Permanent departure from Hong Kong;
(d) Total incapacity; and
(e) Small balance account.
In the consultation paper, more flexibility is suggested. If the proposal is accepted, employees would be able to choose to withdraw their benefits in a lump sum or gradually, and no particular payment method would be mandated. There will also be no prescribed limit on the frequency and the amount of withdrawal.
Furthermore, apart from the grounds in 3(a) to (e) above, an additional ground is suggested where an employee will be entitled to have an early withdrawal if he/she is certified to have an illness that would likely reduce his/her remaining life expectancy.
With the above changes, Hong Kong employees will have greater control over their retirement funds. Employers should closely observe the changes of the Ordinance in order to comply with the relevant provisions, in particular those relating to obligations to make contributions.
If you would like to have further information on the MPF Schemes or any other issues relating to employment law in the Greater China region, experienced lawyers in our firm will be happy to assist.