What are Voluntary Contributions?

December 26th, 2018. 06:10 pm

It is possible to increase your post-retirement savings by Voluntary Contributions. Voluntary Contributions are the amount of money that you contribute in excess of what is required by a regular MPF.  In this way, members can take advantage of the principal of Dollar Cost Averaging and the Compounding Effect to provide a higher income for the life of retirement.

 

There are two ways of making additional contributions: the Voluntary Contributions and the Special Voluntary Contributions. In the case of the former, the employer chooses a scheme and opens an account for the employee. Contributions are calculated on the basis of the income of the employee, who will then make a fixed amount contribution to the trustee through the employer at a regular interval.  In some cases, the employee may make a matching contribution into the employee’s account.  Depending on the regulations of the scheme, you may withdraw or transfer your benefits before retirement, but only at the termination of the employment.

 

In Special Voluntary Contributions, members can open an account with the trustee of their choice.  They can also choose a scheme other than the MPF scheme that they set up through the employers. The frequency and amount of the contributions are more flexible, to be arranged by the direct negotiations between the members and the trustee.  Members can also withdraw/transfer their benefits at any time.  No redemption fees will be charged against the withdrawals or transfers.

 

According to the 2016 report of the Statistical Analysis of Accrued Benefits Held by Scheme Members of Mandatory Providential Fund Schemes, the amount of the Voluntary Contributions and Special Voluntary Contributions is rising in proportion to the total contribution account, from 11% in 2006 to 23% in 2015.  The Voluntary Contributions amount in 2015 is about three times of that in 2006, while the Special Voluntary Contributions amount is 26 times of that in 2006. These figures reflect the confidence of the scheme members in the MPF system.

 

2006                                  2015

Amount of VCs (billion)                                             $2.993                               $8.697

Amount of SVCs (billion)                                           $0.261                               $6.674

 

(Source: MPFA website)

 

It pays to make contributions to a MPF scheme early in one’s working life. The amount of the contribution may only be a few hundred dollars a month, but with the passage of time, members will enjoy the benefits that come from the Dollar Cost Averaging and the Compounding effect.  For example, assuming your contribution is $1,500 per month, your projected benefits at different points in the future are shown in the table below:

 

(Source: Key points, 15-year investment performance of the MPF System Press conference, 26 January 2016. Mandatory Provident Fund Schemes Authority Dr David Wong, Chairman and Mr Philip Tsai, Non-executive Director)

 

 

 

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