Double pay and bonuses count towards MPF: the 5% rule, voluntary top-ups, and starting early

At the start of a new year, many workers receive double pay or a bonus. But the MPFA reminds members: this income also counts as MPF “relevant income” and must attract the 5% contribution. Rather than spending this “reward for a year’s hard work” in one go, setting part of it aside as voluntary contributions lets compound interest accelerate your retirement savings — and for members unfamiliar with investing, the Default Investment Strategy launched in April 2017 is a ready-made option.

Why double pay and bonuses attract MPF contributions

Under MPF law, the contribution for ordinary employees is calculated at 5% of “relevant income”. Relevant income means any wages, salary, leave pay, fees, commissions, bonuses, contract gratuities, tips or allowances paid by the employer in monetary form:

There is only one test: whether it is paid in monetary form. As long as double pay or a bonus is paid in cash (or its monetary equivalent), it enters the contribution calculation — whatever you call it.

A common myth: bonuses are “extra income” and exempt?

Wrong. Many assume a bonus is “extra” money from the employer and not wages. But the law looks at the form of payment, not the label: bonuses, awards and commissions paid in monetary form all count as relevant income. Employers are obliged to calculate and deduct contributions on this portion, and workers should check their pay slips to make sure the contribution for the bonus month is correct.

Voluntary contributions: let compounding work for you

Treating yourself after receiving double pay or a bonus is fair enough. But retirement protection is a long-term investment — the earlier you start, the more powerful the compounding effect. Channelling part of your double pay or bonus into voluntary MPF contributions means using today’s money to top up the future you, decades down the line.

The “Default Investment”: a ready-made option for non-investors

For members less familiar with investing, the Default Investment Strategy (“Default Investment”), launched on 1 April 2017, is a solid choice. It has three features:

It gives workers who do not know how — or do not want — to manage their MPF a ready-made, retirement-appropriate investment solution.

Action checklist for workers

• Check your pay slip: the MPF contribution for the bonus month should be calculated at 5% of “salary + bonus”;
• Budget before it arrives: decide in advance how much of your double pay or bonus goes to voluntary contributions;
• Consider the Default Investment: if you have never managed your MPF portfolio, find out whether the strategy suits you;
• Start early: there is no minimum for voluntary contributions — what matters is starting, and letting time do the compounding.