Are you making the most of your MPF, or are you ticking a few boxes at random and hoping for the best?
We all know the drill… you start a new job and are presented with paperwork that needs to be completed before your MPF can be set up. Let’s be honest, it isn’t a sexy topic, but it is important to know where yours is and what it’s doing. The scheme started in the year 2000, with the aim of ensuring that each and every Hong Kong resident has some money to support themselves when they enter retirement. Although the contribution you make may be small, the idea is that having something is better than nothing. So here is a 101 guide to hopefully give you a better understanding of the MPF, and the steps you can take to get the best out of it.
Who provides the MPF?
There are currently 20 providers in Hong Kong, mostly big banks and insurers. When you start a job, you will automatically be enrolled into the MPF scheme your company uses, but what most people don’t know is that you are free to choose your own provider for your own contribution.
How much do I need to put in?
Generally speaking, both the employer and the employee must contribute a minimum of 5% of the first $25,000 of salary each month. Some employers offer more than this as part of your employment package, but this can also be subject to caveats (e.g. how long you work for the company). It’s important to know what they are giving you, and if they can take it away were you to leave the job, so don’t be afraid to ask questions.
What if I am self-employed?
If you are making above $7,100 per month, then you need to be paying in to an MPF. Entrepreneurs sometimes run the risk of prioritising their businesses over themselves, which can create a gap in their contributions. Remember, there might also be tax advantages to making sure you are contributing to an MPF, so it’s worth being aware of this. If in doubt, as always, ask an expert.
Should I be making additional contributions?
In addition to the mandatory contributions, you can choose to add more than the required amount each month. This can help to supplement how much you hold in your account and can be put towards your retirement. However, most MPFs have a very limited choice of mutual funds to select from and usually these are limited to funds run by the provider. A Financial Advisor can show you the pros and cons of adding a little extra to your MPF each month, or discuss alternatives that might work better for you.
How do I pick funds?
Most of us, on starting a new job, are presented with an MPF form by our employer, which offers us a couple of options as to how we would like our contribution to be allocated.
- The first option is the default investment strategy, which is a mixed assets fund constructed by the provider.
- The second option involves choosing from a list of funds and selecting a percentage to make up 100% of your portfolio. These funds are generally made up of money market, guaranteed, bond, mixed asset and equity, international and Hong Kong funds. Your decision should be based on your appetite for risk and what you are happy to invest in. So, what do you do if this all seems a bit overwhelming? There is plenty of advice available about how best to invest your MPF contribution. Each provider has information to help you through your choices and there are also specialised websites to allow you to compare the providers out there.
- Another option is to ask an expert. An SFC licensed MPF broker will be able to explain the different funds to you and help you make that decision. This means you can get a portfolio that not only suits your needs now, but also evolves with you. When I meet with a new client I often find they hold at least one MPF and don’t know off the top of their head what they are invested in or how much it is worth. Getting proper advice to make sure that you are diversifying and investing your MPF sensibly can make really make a difference to your overall wealth. This is money given to you by your employer, so why not make the most of it?
What happens when I change jobs?
Too many of us move jobs and forget to move the MPF with us. It can mean that you end up with several MPFs all sitting in different accounts, associated with different jobs. This can be hard to deal with and hard to control.
If you have multiple accounts, you will receive information from different trustees every now and then, including benefit statements, Fund Fact Sheets, updates on scheme information and other promotional materials. The more accounts you hold, the more materials you will receive, and when you get so many bits of paper in the mail it can be easy to ignore them and let them pile up (or just throw them away).
The key to MPF management is to keep things simple. One of the best ways to achieve easier account management is to hold just one personal account. A proper advisor can help to find and amalgamate all your MPFs into one place.
Is it enough for me to retire on?
If you are relying solely on your mandatory MPF contributions, the answer is no. Most Hong Kongers have way too little saved for retirement. For those of us who are working in HK for a limited time or who want to retire elsewhere, the MPF should be seen as a handy way to supplement our larger retirement planning (but not as a substitute for it). As usual, the earlier you start the easier it is to build up a proper retirement fund, enabling you to live the life you want when you don’t want to work anymore.