Provident fund vs MPF: three key differences you should know

What is MPF?

A mandatory retirement savings system requiring both employers and employees to contribute — unlike provident funds, the boss doesn’t call all the shots. So what is MPF? Simply put, it is the retirement protection system that the law requires both employers and employees to fund. An old friend, Chi-ming, recently told Ah Jik he envies his brother — whose company offers an occupational retirement (“provident fund”) scheme. “Given the choice, I’d pick the provident fund,” said Chi-ming. “It’s a better deal: only the boss contributes, employees pay nothing, and I don’t have to wait till 65 to get the money.” Ah Jik realised Chi-ming was fuzzy on the differences — so here’s the explainer.

How do contributions differ?

Provident funds can be employer-only; the MPF requires both sides. Provident-fund schemes are run by employers and can be funded by the employer alone, or jointly by employer and employee. MPF schemes require employers to contribute, with employee contributions depending on income; mandatory contributions are 5% of relevant income on both sides — employees earning under HK$5,000 a month pay nothing, but employers still contribute 5% of their relevant income. Both sides cap at HK$1,000, i.e. HK$2,000 combined.

MPF vs ORSO: what is the biggest difference?

One is mandatory, one is voluntary; members pick MPF funds, the boss picks provident-fund portfolios. That is the MPF vs ORSO distinction in a nutshell.

Who chooses the investments?

Employers decide provident-fund portfolios; MPF members pick their own funds. Since employers run provident-fund schemes, they choose the investment mix. Under the MPF, employers choose the trustee and scheme, while employees pick the funds inside it.

When do employer contributions vest?

Provident funds have vesting scales; MPF mandatory contributions vest immediately. Employees who joined a provident fund on or before the MPF’s launch (1 December 2000) take their accrued benefits on leaving under the company’s “vesting scale” terms; those joining after must calculate their “minimum MPF benefits” and transfer that amount in full from the provident fund into their own MPF account, withdrawable only under MPF-law conditions. Under the MPF, all mandatory contributions vest in the employee immediately — though members can only withdraw at the retirement age of 65 or under the ordinance’s specified circumstances.

Ah Jik adds: if you ever get to choose between the two, ask your employer for the full details of each scheme and pick what suits your needs. The MPFA’s leaflets are also a good way to learn more about both.

To compare MPF and provident-fund choices, visit MPF fund comparison.