Since its implementation on 1 December 2000, The Mandatory Provident Fund (“MPF”) system has faced significant criticism by Hong Kong citizens. The main issues raised include low contribution limits, excessively high management fees charged by MPF trustees, and inadequate investment returns, all of which fail to ensure a satisfactory retirement lifestyle.

The MPF mechanism seems to overlook employees’ rights to manage their own investment funds, granting employers the authority to choose the MPF trustee and scheme instead. Additionally, there are no guaranteed minimum returns on the investment funds offered by the MPF trustees. In recent years, certain MPF investment funds have suffered significant losses due to the volatility in the Hong Kong and China equity markets, as well as global economic and political conditions. Consequently, the MPF system has failed in its objective to safeguard the lifestyle of retired employees. The backlash has been so severe that some Hong Kong citizens have proposed abolishing the system altogether and replacing it with a comprehensive social security assistance system that offers complete retirement protection.
 

 

Addressing concerns and criticism

In response to the criticisms about the system, the Mandatory Provident Fund Schemes Authority (MPFA) has set short term and long term targets to reform it.

 

A. Short term reforms that have already been implemented include:

  1. Employee Choice Arrangement (ECA, also known as MPF Semi-portability) that has come into effect on 1 November 2012.

    Under the ECA transfer rules, employees can transfer the full amount of their accrued benefits to an MPF scheme of their choice once per calendar year (i.e., anytime between 1 January and 31 December). These transfers would come from their mandatory contributions to their employer’s selected MPF schemes.

 

  1. Increase in the maximum level of relevant income for MPF contributions which took effect from 1 June 2014. The cap on monthly MPF contributions has been raised from HK$1,250 to HK$1,500, resulting in higher contributions from both employers and employees.

 

  1. Introduction of a Default Investment Strategy (“DIS”) which took effect on 1 April 2017. The DIS is a standardised, low cost investment choice designed for MPF scheme members to switch their investments to the DIS funds at any time for progressive risk mitigation of investment, starting from age 50 up to and including 64.

    The DIS also features a statutory management fee cap of 0.75 percent of net asset value for the two constituent funds.

 

B. Long term reforms that will take effect include:

The most important and long-awaited reform, the eMPF platform, will be launched by the MPFA in June/July 2024.  

The eMPF platform is a centralised electronic platform designed to automate the administration process of MPF schemes. It allows trustees, employers and employees to manage MPF scheme openings, MPF contributions, change of investment choices, and the withdrawal of accrued benefits from MPF trustees. The aim of the eMPF platform is to enhance operational efficiency, reduce administration costs and improve user experience.

For details about the eMPF platform, click here.

The eMPF platform will cover all 12 MPF trustees, 360,000 employers, and 4.7 million members within Hong Kong's MPF schemes. The 12 trustees are required to use the eMPF platform. However, corporate and individual members still have the options of processing MPF transactions through eMPF platform or through paper forms.

The five smallest MPF trustees will transition to the eMPF platform in June/July 2024, followed by the larger MPF trustees at a later stage. The entire migration is expected to be completed by the end of 2025.

Once the MPF trustees transition to the eMPF platform, the processing times for administrative transactions are expected to be reduced to about one week, compared to the current two to three weeks. Additionally, members can anticipate a reduction in management fee charges of at least 30 percent in the first two years, with potential savings of up to 50 percent when the platform is in full operation.

 

C. Future MPF reform measures

When the eMPF Platform is fully operational by the end of 2025, it is expected that the MPFA will continue to implement reform measures to enhance the MPF system. These measures may include full MPF portability arrangements and government initiatives to make contributions for low-income workers to increase their retirement savings.

 

 

The future of the MPF system

There is a long road ahead for the evolution of the MPF system to an efficient and effective one that protects the retirement savings of the Hong Kong working population. It is therefore important for both employers and employees to keep abreast of the forthcoming changes in the MPF system, as these will impact their margins and future retirement benefits.

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Joseph Hong
Partner, Corporate Services