Mandatory Provident Fund (Hong Kong)

The Mandatory Provident Fund (Chinese: 強制性公積金), often abbreviated as MPF (強積金), is a compulsory saving scheme (pension fund) for the retirement of residents in Hong Kong. Most of employees and their employers are required to contribute monthly to mandatory provident fund schemes provided by approved private organisations, according to their salaries and the period of employment.

History

In traditional Chinese society, a retired person was supposed to be supported by his family and his savings, thus an extended family formed a safety net. Life expectancy was comparatively low compared to today.

As Hong Kong become a developed entity, life expectancy in the territory improved greatly and the birth rate dropped significantly. Extended family was broken into nuclear family. By the late 1990s, only 29% of Hong Kong's three-million workforce was covered by formal retirement provisions, Hong Kong's social security system is faced with the demographic challenge of a growing number of elderly people in the future.[1] There were some calls to establish a central provident fund and heated debates among government, politicians and trade unions in the early 1990s.

In 1994, the World Bank published the report "Averting the Old-Age Crisis: Policies to Protect the Old and Promote Growth", in which a three-pillar approach to protection for the aged was put forward.

The three pillars were:

After some 30 years of debate on how to provide financial security for the ageing Hong kong population, the Hong Kong Government legislated on a mandatory, privately managed fully-funded contribution scheme in 1995 along the lines of the second pillar defined in the World Bank report.[1][2] The Hong Kong Mandatory Provident Fund was implemented in December 2000, following the enactment of the Mandatory Provident Fund Schemes Ordinance in August 1995 and Provident Fund Schemes Legislation (Amendment) Ordinance 1998 in March 1998; the Mandatory Provident Fund Authority was up and running in September.[2][3] Legislators representing the business sector refused to back the MPF legislation unless an offset mechanism was included to allow employers to use amounts paid by them to make long-service payments or severance to staff.[4]

Mechanism

The MPF Schemes ordinance obliges all 300,000 employers in Hong Kong without an existing occupational retirement scheme to enrol their employees, in the region of 2.2 million individuals, in an MPF plan by 1 December 2000.[5] Any company that has not set up an MPF plan may be liable to criminal prosecution with possible fines of up to HK$100,000 and six months imprisonment; persistent offenders risk a penalty of HK$200,000 and one year in prison.[6] At the same time, companies hoping to be admitted as service providers were also required to register by the deadline.[7] The employer and the employee each contribute a sum equal to 5 per cent of the employee's salary to funds run by banks, insurers or fund houses. Total contributions are capped at HK$2,500 a month.[4] Employees and self-employed are required to contribute 5% of their if their earnings to their MPF fund if these exceed HK$4,000.[8] When the scheme was launched, the upper relevant income limit for contributions was $20,000.[6]

Under the scheme, the choice of MPF provider is the province of the employer, with employees having no say.[4] The regulations require employees, except those covered by industry schemes for the catering and construction sectors – these have high reliance on usual workers – to join the MPF provider of their new employers when they change jobs.[7] Employees may elect on the asset allocation among different funds available from their providers, but may only do so for their part of the retirement contribution.[9][10]

Hong Kong employees and their employers started contributing to the scheme as early as 2000, but can only withdraw accrued benefits at 65.[11] Only since 1 November 2013, employees were given freedom to transfer their fund assets to any provider they liked, once a year. However, only the portion of the fund assets corresponding to their contributions could be transferred.[4]

Criticisms

The MPF was launched during a downturn in the economic cycle, and there was pressure from businesses to delay its launch.[12] Furthermore, there was disquiet among many small businesses, for which as employers' MPF contributions represented a de facto a 5% increase to payroll costs.[6] Even when the scheme was launched, there were concerns among employee federations that the assets constituting the fund at retirement would only suffice to cover living expenses for a short period.[8] Global Aging Institute president Richard Jackson remarked in 2016 that the retiring baby-boomers in Hong Kong were faced with challenges, as MPF was immature and traditional family retirement support was breaking down.[13] Dr Ernest Chui, an academic at Hong Kong University criticised the scheme as being unadapted to Hong Kong workers. He said that in terms of the demographic changes that Hong Kong is facing, “the MPF scheme is very ineffective in terms of ‘replacement rate’ and thus cannot satisfy people’s need after they retire.”[11] Robert Palacios, a senior economist at the World Bank noted that the Mandatory Provident Fund’s offset mechanism, where an employee’s severance pay can be offset by the contributions made to his or her retirement funds, undermined the effectiveness of retirement protection in the city.[13] Palacio explained that contributions being made are directed at two purposes – unemployment benefit and at the same time as a pension – thus not achieving either objective. From the period since its launch to 2010, employers used HK$12 billion from employees' MPF accounts to make severance or long-service payments; employees made redundant risked seeing their MPF funds depleted by these withdrawals.[4]

See also

References

  1. 1 2 http://www.scmp.com/article/218642/mpf-good-step-ahead-people-sar
  2. 1 2 http://www.mpfa.org.hk/eng/mpf_system/background/index.jsp
  3. ↑ http://www.mpfa.org.hk/eng/mpf_system/milestones/index.jsp
  4. 1 2 3 4 5 http://www.scmp.com/business/article/1138260/time-stop-bosses-dipping-their-fingers-mpf
  5. ↑ http://www.scmp.com/article/330132/capital-costs-seen-burying-half-providers
  6. 1 2 3 http://www.scmp.com/article/328818/smaller-firms-hold-back-they-consider-savings-scheme-be-staff-pay-rise
  7. 1 2 http://www.scmp.com/article/301355/industry-schemes-attract-five-tenders
  8. 1 2 http://www.scmp.com/article/308570/taxi-warning-evasion
  9. ↑ http://www.scmp.com/article/332956/warning-mpf-dodging-bosses
  10. ↑ http://www.scmp.com/business/money/markets-investing/article/1398938/retirement-funds-outshine-hsi-challenges-ahead
  11. 1 2 http://www.scmp.com/news/hong-kong/education-community/article/1932196/retire-60-dont-force-it-why-we-need-hong-kongs
  12. ↑ http://www.scmp.com/article/253747/launch-mpf-provide-jobs-industry
  13. 1 2 http://www.scmp.com/news/hong-kong/politics/article/1935515/affluence-test-assess-hong-kong-rich-not-poor-pension-scheme

External links

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