MPF Must-Knows: Consolidation and Tax-Deductible Voluntary Contributions (TVC)

With the introduction of the Employee Choice Arrangement by the Mandatory Provident Fund Schemes Authority (MPFA) in 2012, employees have the freedom to select their own plans.

This arrangement allows employees to transfer or consolidate their MPF accounts, empowering them with greater control over their retirement planning and facilitating more effective MPF management.

What is MPF consolidation?

Under the Employee Choice Arrangement, employees can transfer their mandatory contributions to a selected MPF scheme annually. After the transfer, new employee contributions will go into the employer-selected plan until the next transfer window. However, the mandatory contributions from the current employer will have to remain with the plan selected by the employer. 

Additionally, employees can transfer all past employer and employee contributions to a chosen MPF scheme after leaving a job. 

That means, except for the mandatory contributions from the current employer, employees can consolidate other parts of their MPF into a preferred scheme.

Contribution vs. Personal accounts

Many people who switch jobs end up with multiple MPF accounts, making them difficult to manage. MPF accounts for mandatory contributions are divided into contribution and personal accounts:

• Contribution accounts: These accounts consist of the MPF contributions from the current job. Each month, both the employee and employer contribute at least 5% of the employee’s salary each month. The mandatory contribution from either side is capped at HK$1,500. 
• Personal accounts: These accounts hold MPF contributions from previous jobs. When changing jobs, accrued benefits from the original contribution account are automatically transferred to your personal account. Contribution transfers under the Employee Choice Arrangement will also move to your chosen personal account.

In short, when employees change jobs, new personal and contribution accounts are created, leading to an increase in the total number of MPF accounts. 

By the end of 2023, MPFA reported 4.4 million contribution accounts and 6.5 million personal accounts for just 2.9 million employees and self-employed individuals. This means the average person in Hong Kong has 3.7 MPF accounts.

Should I consolidate my MPF accounts?

After changing jobs, you have the option to keep your MPF contributions in your previous company’s plan as a personal account. Alternatively, you can consolidate your MPF accounts by transferring the accrued benefits to your new company’s plan for easier management. Both options have their pros and cons.

Consolidate all MPF accounts VS multiple MPF accounts

While fund companies and advisors encourage employees to consolidate their MPF accounts for the sake of simplicity and convenience, there are other advantages to maintaining multiple accounts. 

Different MPF plans offer funds of the same category can exhibit significant performance differences. For instance, according to MPFA data, the best-performing US equity fund in 2023 returned 38.69%, while the worst-performing one only gained 22.94%.

Additionally, for investors interested in the thriving Japanese equity market, it is worth noting that only three of such funds are available across the scheme. This limitation serves as one of the reasons why maintaining multiple MPF accounts can be beneficial.

One-stop MPF management platform: eMPF 

For years, managing multiple MPF accounts was a challenge due to the independent operations of different MPF trustees. However, the launch of the eMPF platform will significantly simplify it.

The eMPF platform not only eliminates the need for paper forms and centralises the management of MPF funds, it also allows users to control multiple MPF schemes' fund portfolios through a single platform. If you wish to consolidate MPF into a single account, the eMPF platform simplifies the process by reducing the amount of form-filling required.

The eMPF platform is expected to reduce MPF administrative fees by an average of 36% in the first two years. This cost reduction is estimated to save HK$30-40 billion over a 10-year period, which ultimately will boost MPF members’ portfolio returns. The MPFA anticipates all trustees will join the platform within 18 months. For more information, click here for the integration timetable for eMPF.

Tax-deductible voluntary contributions (TVC)

Designed for retirement savings, MPF may not suffice for a comfortable retirement everyone deserves after decades of hard work, due to longer life expectancy, inflation, and high cost of living in Hong Kong. 

To encourage better retirement preparation, TVC was introduced in 2019, which offers a tax deduction of up to HK$60,000 per tax year (combined with qualifying deferred annuities).

For instance, let’s consider a single person earning HK$720,000 annually. They would typically pay HK$78,900 in taxes. However, by contributing HK$60,000 to TVC, they can save HK$10,200 in taxes (HK$60,000 x 17%).

This tax deduction provides individuals with an opportunity to enhance their retirement savings while enjoying potential tax savings.

It is worth noting that other voluntary contribution plans outside of TVC do not offer tax benefits. 

These non-tax-deductible voluntary contributions can be made by employers or employees by exceeding the minimum 5% contribution of the employee's monthly salary or by employees directly opening a Special Voluntary Contributions (SVC) account with the trustee.

Like mandatory contributions, TVC can be invested in any fund within the MPF scheme. If no instructions are provided at account opening, TVC contributions default to the Default Investment Strategy (DIS), a globally diversified strategy with risk reducing as members near retirement. The adjustments are made based on the equity-bond allocation. 

Flexible asset transfer with TVC, but limited liquidity

TVC offers flexible retirement investment options. Similar to the Employee Choice Arrangement, TVC members can transfer their entire TVC balance to another MPF scheme's TVC account anytime, but not to a contribution or personal account.

However, like mandatory contributions, TVC balances can only be withdrawn at age 65 or under specific circumstances, limiting liquidity regardless of the fund chosen. For more flexible investment options, consider low-fee platforms like Endowus.

Enjoy low-fee fund investments through Endowus

A recent study has shown that US$1.1 million (HK$8.6 million) is the number to which Hong Kongers believe is required to lead a comfortable retirement lifesyle. Yet, many face a significant shortfall as compared to their current savings levels.

Supplement your MPF and TVC contributions with a disciplined monthly investment plan on Endowus. Our Endowus Flagship Portfolio is a globally diversified, institutional-grade, low-cost portfolio designed as a one-stop solution for investors to accumulate their core general wealth.

Endowus provides access to Best-in-Class funds at lower costs, with no subscription fees, transaction fees, or any hidden fees. Clients receive 100% cashback of the trailer fee rebate and pay only a low, fair, and all-in advisory fee (0.1-0.6% per annum). 

Time and time again, fees have been proven to be one of the key determinants of long-term returns. 

Get started with Endowus HK today to start a new investment experience.

Read more:

• How much do you need to retire in Hong Kong?
• Gen X, it's not too late to start investing in your 40s
• Goal-based investing and why it matters

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