Tax breaks urged to boost MPF voluntary contributions as Hongkongers shun monthly investing

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

Hongkongers are famously short-termist, with little appetite for long-horizon monthly fund investing. In March 2012 an industry voice urged the government to offer tax incentives to draw more people into MPF voluntary contribution schemes and strengthen retirement protection. What exactly are voluntary contributions — and why would it take a tax break to move the needle?

What are MPF voluntary contributions?

MPF voluntary contributions are extra payments into MPF accounts on top of the mandatory 5 per cent, with flexible amounts. Only mandatory contributions are currently tax-deductible — voluntary top-ups get no relief, which is what the industry wants changed.

Why do Hongkongers dislike long-term monthly investing?

A senior vice-president at a Sun Life-affiliated firm said Hongkongers’ mindset skews short-term, overlooking compounding. Voluntary take-up tracks the market mood — buoyant markets bring top-ups — but most contribute just HK$500 to HK$1,000 monthly.

How would tax incentives encourage top-ups?

The executive proposed making voluntary contributions tax-deductible, but cautioned against hiking mandatory contributions at once, which could hurt employers. Only 20 per cent of employers make voluntary top-ups, deterred by cost and red tape. (Editor’s note: a corrupted character in the original has been reconstructed based on context.)

Are MPF fees really lower than retail funds?

MPF fund fees had fallen to about 1.5 to 1.6 per cent on average, roughly half the 3 per cent typical of retail funds. Retail funds have little room to cut fees given unstable inflows and costly distribution; MPF distribution costs are very low.

For how voluntary contributions work and whether they suit you, see the contribution guides at the MPF education hub.