Government presents legislation to increase minimum and maximum relevant income levels for Mandatory Provident Fund contributions

     The Government has proposed to increase both the monthly minimum relevant income level (Min RI) and the monthly maximum relevant income level (Max RI) for the Mandatory Provident Fund (MPF). It is proposed that the Min RI would be raised from $5,000 to $6,500 with effect from November 1, 2011, and the Max RI would be increased from $20,000 to $25,000 with effect from June 1, 2012.

     The government proposal is set out in the Mandatory Provident Fund Schemes Ordinance (Amendment of Schedule 2) Notice 2011 and the Mandatory Provident Fund Schemes Ordinance (Amendment of Schedule 3) Notice 2011 (collectively referred to as the "Amendment Notices") presented to the Legislative Council (Legco) today (June 14). The Amendment Notices also seek to make corresponding amendments to the daily and annual Min RI and Max RI.

     With the increase of the Min RI to $6,500, an additional 180,900 employees and self-employed persons (SEPs) would be excluded from making mandatory contributions. With the increase of the Max RI to $25,000, 514,500 employees and SEPs would be required to make additional mandatory contributions.

     The Mandatory Provident Fund Schemes Ordinance (MPFSO) stipulates that the Mandatory Provident Fund Schemes Authority (MPFA) has to conduct a review of the Min RI and the Max RI at least once every four years, and that the MPFA must take into account specified statutory factors (see Note), among other factors, in the review. With the implementation of the Statutory Minimum Wage (SMW) from May 1, it is considered appropriate to make reference to the hourly SMW rate and the median working hours of the low-income group in determining the Min RI. The proposal also reflects views of key stakeholders, including those expressed at the public hearing organised by the Legco Panel on Financial Affairs on April 20, 2011.

     "The proposal to revise the Min RI to $6,500 would allow the lower-income group to continue to be spared the burden of making mandatory MPF contributions. We believe the proposed level has struck a reasonable balance between addressing the basic retirement needs of the working population and maintaining their present livelihood," a Government spokesman said today.

     The existing level of the Max RI at $20,000 has not been revised since the implementation of the MPF System in 2000. In the past three reviews conducted by the MPFA in 2002, 2006 and 2010, the statutory factors all pointed to an increase to $30,000.  

     "In seeking to better achieve the policy objective of the Max RI to encourage the workforce to save for basic retirement needs, we have also taken note of the concerns expressed by employer groups about any substantial increase over costs as well as the wide range of views in the community. We therefore propose to defer implementation of the Max RI to June 1, 2012, to allow employers and employees a longer time to adjust to the new contribution level," the spokesman added.

     "We understand there is a need to implement the Min RI following passage at Legco as soon as possible, such that the lower-income group who may earn more due to SMW can continue to be spared the burden of making mandatory contributions. Taking into account the time required for adjustment of systems by trustees and employers and the publicity on the revised income levels, the MPFA has advised that the effective date for the Min RI would be November 1, 2011," the spokesman said.

     At present, the MPFSO provides that, unless exempted, an employer and employee must each contribute 5% of the employee's relevant income to an MPF scheme as mandatory contributions, while an SEP must similarly contribute 5% of his relevant income. However, if the relevant income of the employee or SEP concerned is less than the Min RI, he is not required to make MPF contributions himself, although the employer still has to make MPF contributions for him. On the other hand, for a relevant employee whose relevant income is above the Max RI, both he and his employer are not required to make mandatory contributions in respect of the excess relevant income. The same applies to an SEP. The pre-existing Min RI has been set at $5,000 per month since 2002 and the Max RI has been maintained at $20,000 per month since the implementation of the MPF System in 2000.  

(Note: The statutory factor for the Min RI is 50% of the monthly median employment earnings prevailing at the time of the review as compiled from the General Household Survey conducted by the Census and Statistics Department. The statutory factor for the Max RI is the monthly employment earnings at the 90th percentile of the monthly employment earnings distribution.)

Ends/Tuesday, June 14, 2011
Issued at HKT 16:03