30 July, 2018
The Mandatory Provident Fund Schemes Authority (MPFA) has recently submitted to the government its regular review report on the minimum and maximum relevant income levels (Thresholds), proposing to raise the Thresholds for the monthly mandatory provident fund (MPF) contributions.
MPF monthly contributions
Under the Mandatory Provident Fund Schemes Ordinance (MPFSO), all employees and employers (unless exempted) are each required to contribute 5% of the employee’s relevant income into a registered MPF scheme subject to the Thresholds. The purposes of setting the Thresholds were to ease the financial burden of the low-income employees and self-employed individuals, and to encourage them to save for their retirement. The Thresholds are currently set at HK$7,100 (minimum) and HK$30,000 (maximum) respectively. Accordingly, if the income of an employee is less than HK$7,100 per month, the employee will be exempted from making his/her contribution, though his/her employer’s obligation to make the mandatory contributions remains. On the other hand, if the employee’s monthly income is HK$30,000 or above, both the employee and the employer are not required to make contributions for that part of the income which is in excess of HK$30,000, they only need to make the maximum monthly contribution of HK$1,500 each.
At the commencement of the MPF system on 1 December 2000, the Thresholds were set at HK$4,000 and HK$20,000 respectively. Both Thresholds have since been adjusted several times as a result of the recommendations made by the MPFA. Under the MPFSO, the MPFA is required to conduct a review of the Thresholds no less than once in every four years to review whether the Thresholds should be adjusted having regard to all relevant factors.
Proposed changes
Under the MPFA’s latest proposal, the Thresholds will be increased with the exemption income level revised from HK$7,100 to HK$8,250, and the maximum income level from HK$30,000 to HK$48,000. The latter would be implemented in two stages. In the first two years, the maximum income level would be raised to HK$39,000. From the third year onwards, it would be further raised to HK$48,000. The 5% contribution by employers and employees would remain unchanged. Accordingly, the maximum monthly contributions of both the employers and employees would rise from HK$1,500 to HK$1,950 in the first stage, and from HK$1,950 to HK$2,400 in the second stage.
The following table shows the past adjustments of the Thresholds since the introduction of the MPF schemes and the latest proposed changes:
|
Adjustment date |
Minimum level (HK$) |
Maximum level (HKS) |
|
1 Feb 2003 |
$5,000 |
— |
|
1 Nov 2011 |
$6,500 |
— |
|
1 Jun 2012 |
— |
$25,000 |
|
1 Nov 2013 |
$7,100 |
— |
|
1 Jun 2014 |
— |
$30,000 |
|
Proposed changes |
$8,250 |
1st stage: $39,000 2nd stage: $48,000 |
Implications
If adopted, the proposed changes would have cost impact on many employers and affect nearly 500,000 employees whose monthly wages exceed HK$30,000. While the labour sector welcomes and supports the proposal as it will bolster retirement protection, the business sector considers the proposal unreasonable as it will further increase the financial burden on employers given that they are already facing the government’s impending plan to scrap the MPF off-setting mechanism. They urge the government to put the proposal on hold until the issue of the off-setting mechanism has been decided. Although the proposal is being considered by the government and no decision has yet been made, the government considers that the proposed changes in the Thresholds and the scrapping of the off-setting mechanism will not happen at the same time, and even if the abolition of the off-setting mechanism is approved by the Legislative Council at the end of this year, it would only come into effect four years later. These issues should therefore be considered separately. We will provide an update once a decision has been made by the government.
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