Retirement Planning
FINANCIAL UPDATE
MPF – THE SHOCKING NEWS?
By David Bojan, managing director, Horwath Financial Services
Are professional services firms choosing the best protection and pension plans for their partners and staff? Most legal firms in Hong Kong provide nothing more than the statutory Mandatory Provident Fund (MPF) scheme; very few offer comprehensive ‘top-up’ plans (usually only for partners and senior-level staff).
The shocking news is that on average, MPF will cover only 30 – 40% of average retirement needs, but retirees will need at least 70% of their pre-retirement income to maintain their standard of living. The key is to start saving early!
Under the MPF regulations, employees can offset their MPF contributions of up to HK,000 per year against Hong Kong salaries tax, and receive a one-off lump-sum payment when they reach retirement age.
Pension schemes may also be established under the Occupational Retirement Schemes Ordinance (ORSO). Under section 17(1)(h), employers can contribute up to 15% of an employee’s emoluments to a recognized scheme, and the contributions are fully tax-deductible.
The advantages of group pension schemes under ORSO include:
- a wider choice of investment funds – around 79 (the MPF product with the most funds has only 26 to choose from)
- funds denominated in six different currencies (all MPF products’ funds are denominated in HK dollars only)
- access to 14 different investment managers (most MPF providers only give the option of one investment management company)
- retirement from age 45 is allowed. (the earliest you can normally retire from MPF is 60)
Also, according to PricewaterhouseCoopers, an employee may choose to give up a certain amount of income and have it redirected to an ORSO scheme through his / her employer. The employee does not have to pay salaries tax on this sacrificed income (subject to a limit of 15% of emoluments), but the process needs to be documents carefully.
The saving of HK,200 is the salaries tax that employee does not have to pay, which is equal to 22.7% of the savings out of net income. The employer would still be eligible to claim a Hong Kong profits tax deduction for these contributions of up to 15% of the employee’s total emoluments.
Horwath Financial Services – employee benefits division – is working with several legal firms in Asia to implement multi-jurisdiction retirement benefits schemes. These enable people to maintain membership of the same scheme even when they move from country to country.