What is MPF?

What is MPF?

  • MPF stands for "Mandatory Provident Fund".
  • This is a mandatory provident fund system which has been implemented in Hong Kong since year 2000.
  • The objective of this mandatory system is to provide secured retirement benefits for the workforce of Hong Kong.

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Why is MPF important?

Hong Kong has a rapidly aging population and most of our workforce do not have any form of retirement protection. Recognizing the need to provide for the long term financial security of our workforce, the Hong Kong SAR Government has implemented the Mandatory Provident Fund system in year 2000.

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Who is covered under the MPF system?

  • Employees aged between 18 and 65 (including both full-time and part-time employees).
  • Self-employed persons aged between 18 and 65.

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What are the mandatory contribution rates?

Employee's Monthly Relevant Income Employer's Contribution Employee's/Self-employed Person's Contribution
Less than HK$7,100 5% Optional
HK$7,100 to HK$30,000* 5% 5%
Over HK$30,000* 5% on HK$30,000*
(i.e. HK$1,500)
Additional contribution - Optional
5% on HK$30,000*
(i.e. HK$1,500)
Additional contribution - Optional

* Effective on 1 June 2014

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What are the features of MPF?

Vesting

Portability

The accrued benefits of an employee can have the following options when the employee ceases employment with his/her employer:

Claim

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Offsetting of Long Service Payment / Severance Payment (LSP/SP)

By law, if an employer has paid employee LSP/SP in accordance with the Employment Ordinance, employer can offset the LSP/SP paid to employee with the accrued benefits derived from the employer’s contributions. The amount offset from the employee’s account should not be more than the amount of LSP/SP paid to the employee.

LSP/SP Offsetting Sequence under FWD MPF Master Trust Basic Scheme and FWD MPF Master Trust Comprehensive Scheme (the “Scheme”)

According to the Rules governing the Scheme, the LSP/SP offsetting sequence under the Scheme is:

  1. Accrued benefits derived from employer’s voluntary contribution (if any)
  2. Accrued benefits derived from employer’s mandatory contribution (If the above accrued benefits derived from employer’s voluntary contribution cannot fully offset the LSP/SP)

See the illustrations below for more details.

Senario 1: Accrued Benefits (employer’s portion) more than LSP/SP
Amount of LSP/SP the employee is entitled to: $30,000
Amount of accrued benefits (employer’s portion) in account: $50,000 ($10,000 voluntary contribution; $40,000 mandatory contribution)

After offsetting
Amount offset from account (employer’s portion): $30,000 ($10,000 voluntary contribution; $20,000 mandatory contribution)
Balance of accrued benefits (employer’s portion) in account: $20,000 (mandatory contribution)
Extra amount paid by employer to employee in respect of LSP/SP: $0
Senario 2: Accrued Benefits (employer’s portion) less than LSP/SP
Amount of LSP/SP the employee is entitled to: $30,000
Amount of accrued benefits (employer’s portion) in account: $20,000 (mandatory contribution)

After Offsetting
Amount offset from account (employer’s portion): $20,000 (mandatory contribution)
Balance of accrued benefits (employer’s portion) in account: $0
Extra amount paid by employer to employee in respect of LSP/SP: $10,000

As shown in the above illustrations, if the accrued benefits derived from the employer’s contributions cannot fully offset the LSP/SP, the outstanding balance must be paid to the employee by the employer. On the other hand, if the accrued benefits derived from the employer’s contributions exceed the amount of LSP/SP, the remaining balance after offsetting has to be retained in the employee’s MPF account.

Offsetting Procedures

There are two ways that the offsetting may take place, depending on whether the employer has paid the LSP/SP to the employee first.

LSP/SP paid to the employee: If the employer has already paid the LSP/SP to the employee in full, he/she may make an application in writing to the trustee to offset LSP/SP from the accrued benefits derived from the employer’s contributions from the employee’s account with supporting evidence.

Tips: Please submit Employee Termination Notification with the original signed acknowledgment receipt from the employee as evidence of payment (employee’s signature must correspond with the signature in scheme administrator’s record).

LSP/SP not paid to the employee: If the employer has not yet paid any part of the LSP/SP to the employee, the employee may make an application in writing to the trustee directly to withdraw the accrued benefits derived from the employer’s contributions from the employee’s account. The trustee will require the employee to provide proof that the employee is entitled to LSP/SP and that such payment has not been paid to the employee by the employer.

Tips: If the employer is unable to settle the LSP/SP, the employee should consider obtaining a letter from the employer, with authorized signature and company chop, stating the employee’s entitlement to an outstanding LSP/SP. This letter will be useful as documentation to the trustee in withdrawing the employee’s accrued benefits as LSP/SP.

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What are the tax benefits?

    Employee and self-employed person: Your Mandatory contributions are tax deductible. The maximum deductible amount should not exceed the amount prescribed in the Inland Revenue Ordinance. For details, please browse the website of Inland Revenue Department at www.ird.gov.hk.

    Employer: The mandatory contributions and voluntary contributions made by you are tax deductible up to 15% of total yearly emoluments of your employees.

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