Understanding MPF Hong Kong: 6 things to know

Regardless of geographical location, retirement savings is usually one of thetop benefits that employees look for. While employer matching can be a greatperk, in certain countries it’s actually a requirement.

The Mandatory Provident Fund (MPF) is Hong Kong’s government-mandated approachto retirement savings. Depending on employee classification, global employersmay be required to contribute to these funds. By familiarizing yourself withthe specific requirements and scenarios, you can stay compliant—and avoidhefty penalties and fines.

1. What is a mandatory provident fund?

The mandatory provident fund, or MPF, in Hong Kong is a structured savingsscheme designed to provide retirement savings for employed and self-employedHong Kong citizens. In most cases, participation is mandatory for employersand employees. But there are some exceptions for low earners, certainprofessions, and non-citizens.

These schemes come in three types:

• Master trust schemes (common)
• Employer-sponsored schemes (best for larger companies)
• Industry schemes (best for casual/mobile employees)

Multinational companies that employ citizens in Hong Kong between the ages of18 and 64 years old are required to participate with compulsory enrollmentdue by the 60th day of employment for full- and part-time employees.Enrollment is due on the first day of employment for casual employees (those not guaranteedemployment for a specific duration like seasonal bartenders.)

2. Understanding the types of MPF in Hong Kong

The size of your company and your industry will determine which type of MPFyou will use. But even within each type, there are dozens of individualchoices that can get a little tricky.

Master trust schemes

The most common type of MPF in Hong Kong is a master trust scheme. These areopen to employees of participating companies, self-employed individuals, andformer employees with accrued benefits. These MPF schemes pool contributionsfrom different participants at different levels of risk. They’re the perfectoption for most small and medium-sized businesses.

Common Investment Options for Master Trust & Employer-Sponsored Schemes

Investment Type

How it Works

Risk Level

Fees

Money Market Funds

Short-term; high-quality interest-bearing securities

Low-Risk

Administrative fees charged as a percentage of asset value

MPF Conservative Fund

Special type of money market fund that invests exclusively in short or long-term HKD investments

Low-Risk

Administrative fees are restricted to months that meet or exceed prescribed savings rates

Guaranteed Fund

Investments with a guaranteed rate of return suitable for risk-averse groups

Lower risk; varies depending on the conditions of the guarantee

Strict guarantee conditions like minimum investment period or withdrawal requirements

Bond Fund

Earns stable income from interest

Low to medium risk; known for stability

Fees assessed as a percentage of asset value

Mixed Asset Funds

Focuses on asset appreciation and higher rates of return

Medium to high risk; flexible to meet different stages of investing

Fees assessed as a percentage of asset value

Equity Fund

Uses stocks to achieve capital appreciation and high rates of return

Relatively high risk

Fees assessed as a percentage of asset value

Index Fund

Uses stocks to earn return rates similar to index funds

Medium to high risk

Tends to accrue lower fees than other stocks options due to less frequent trading

Employer-sponsored schemes

Larger corporations with the resources (including a large number ofparticipants) have the option to create their own pension schemes instead ofpooling with other companies. Master trust schemes generally have access to alarger selection of investment options while employer-sponsored schemes arelimited to those selected by the employer.

Industry schemes

Employees who tend to change employers more frequently can miss out onretirement savings benefits. But since the MPF in Hong Kong is compulsory,they’ve designed a scheme to fit these casual employees. Caterers,construction workers, and people employed in other highly mobile occupationscan register under an industry scheme that is not tied to a specific employer.

3. How to choose the right MPF funds

Unless your multinational company has a large number of Hong Kong-basedemployees or you tend to employ transient workers, you’ll probably be choosing between the particulars of a master trust scheme.

That means that you’ll need to choose a portfolio of investment options thatmeet the needs of your workforce. Luckily, investment principles are the sameacross almost any economy. The same investment principles that work in theU.K. or the U.S., for example, can also be applied in Hong Kong. For example,a younger workforce can tolerate more risk, while those closer to retirementwill need more security.

When you decide on an investment portfolio, focus on risk level andadministrative fees to create a default investment strategy; then, add someflexibility by choosing optional elections employees can use to tailor theirinvestment strategies based on age, income and retirement goals.

4. What you need to know about enrollment and cessation

All eligible employees between the ages of 18 and 64 should be enrolled withinthe first 60 days of employment. This is non-negotiable and missing thedeadline will lead to massive consequences.

Keep in mind:

• There are no exceptions for conflicting company policies. If your company enforces a 90-day probation period, you will still be required to enroll probationary employees in an MPF in Hong Kong by the 60-day deadline.
• Some employees may not cooperate. Your company can still comply by submitting your portions of the appropriate paperwork before the deadline.
• Employers are required to make regular, monthly contributions by the 10th day of every month for regular salaried employees. With the exception of casual employees, employers and employees are obligated to contribute at least 5% of their minimum relevant income (HKD 7,100 per month). For employees earning more or less than the minimum relevant income, contributions are adjusted as follows:

Minimum MPF Contributions for Employers & Employees

Salary Range

Employer Contribution

Employee Contribution

Less than 7,100 HKD

5% of Salary

Not Required

7,100 - 30,000 HKD

5% of Salary

5% of Salary

More than 30,000 HKD

1,500 HKD Max

1,500 HKD Max

• Employers are required to provide proof of contributions (e.g. pay stubs) within 7 working days of any contribution disbursement. Employers should also maintain records of contributions for each employee for up to 7 years .

Who is exempt?

Of course, there’s an exception to every rule.

Certain employees may be exempt from participation in a provident mutual fundscheme. For example, anyone who reaches the age of 64 years old by December1st is considered near retirement and is no longer required to participate.

Certain types of employees that may have retirement plans provided throughother means, like grant-funded school teachers, may be exempt. And foreignemployees who enter Hong Kong for fewer than 13 months, or who are otherwisecovered by an overseas retirement fund, are also exempt from participation.

What you need to enroll a new employee

Your company will set up a mutual provident fund scheme with a trustee, ordesignated party, that manages the scheme independent from your company. Acomplete enrollment, submitted by the 60th day of employment, includes:

• Selection of appropriate investment options
• Personnel details, including name, date of birth, Hong Kong ID numbers, etc.
• A signed personal declaration of residency in Hong Kong

Terminating participation for cessation of employment

It’s a fairly simple two-step process to terminate participation in an MPFfund:

• Calculate the employee’s final pay and contributions , and submit payments prior to the next monthly deadline with your regular payroll contributions.
• Provide written noticeby the next contribution period (10th day of the following month) to the trustee that identifies the terminated employee and last day of employment.

5. Understanding your risks: fines and penalties

Unfortunately, you can’t just leave this one on the back burner—employercompliance is extremely important when it comes to the MPF.

The Hong Kong government enforces MPF participation by using hefty fines—andeven potential imprisonment—for individuals or companies who shirk theirresponsibilities.

For example, missing the 60-day enrollment deadline can cost your company upto $350,000 HKD in fines per offense. Non-compliance isthoroughly investigated in Hong Kong. If liable parties acting on behalf of acompany are convicted, they face up to three years in jail.

Forgetting to notify trustees when employment is terminated can also rack upbig fines. The first offense is typically 5,000 HKD with each additionaloffense at 20,000 HKD .

6. How MPF Hong Kong contributions affect taxes

Both employees and employers can claim MPF Hong Kong contributions on theirannual taxes.

Employers can claim up to 15% of an employee’s annual salary. For most employees, the employer-requiredcontribution is 5% of their salary, capped at 1,500 HKD for higher earners.

Employees can claim up to 18,000 HKD in contributions annually when filingtheir taxes.

The bottom line on compliance for MPF in Hong Kong

While retirement savings is mandatory in Hong Kong, you don’t need to navigateit yourself. If your multinational company is expanding into Hong Kong,consider a global managed payroll companyto help you set up compliant and efficient payroll processes.

Keep in mind, though, the MPF isn’t the only challenge you may face as youexpand internationally. You won’t want to miss this ebook:

Gaining Global Fluency: Multinationals’ missed opportunities revealed

Check out the ebook now to better understand what it means for anorganization like yours to have true Global Fluency—and master thecomplexities of multinational business.