Self-employed and MPF: mandatory contributions halved, retirement cover may fall short

This article is a rewrite of a report from August 2012.

Many dream of being their own boss. But switching from employee to self-employed MPF changes the contribution math: you are both employer and employee, paying just one 5% — retirement protection can lag by half.

How does self-employed contribution differ?

How are “assessable profits” calculated?

Self-employed persons use assessable profits as relevant income. Say average monthly revenue is HK$25,000 but net profit after costs is HK$15,000 — annual relevant income is HK$180,000 (15,000 × 12). If the business loses money, or annual relevant income falls below HK$78,000 (HK$6,500 monthly average), documented proof exempts contributions for that financial year.

But note: deductions further shrink contributions and assets, weakening protection.

Monthly or yearly contributions?

Monthly is better. Fees don’t differ, but monthly payments harness dollar-cost averaging instead of concentrating a year’s contributions at one market moment.

What else to note?

• Side businesses count: even if self-employment is just a sideline and you already hold an MPF contribution account, the law requires contributions on the self-employed income too — two accounts at once.
• Partnerships declare by equity share: partners report proportionally and contribute as required.
• Half the cover: at equal income, accrued contributions run at half an employee’s — likely too little for retirement, so consider voluntary or special voluntary contributions to top up.