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MPFA to consult the public on introducing an automatic adjustment mechanism for relevant income levels

The Mandatory Provident Fund Schemes Authority (MPFA) today (23 January) started a six-week public consultation on the proposal to introduce an automatic mechanism for adjusting the minimum and maximum levels of relevant income (Min and Max RI Levels).
 
Under the Mandatory Provident Fund Schemes Ordinance (Ordinance), employers and employees are each required to make a mandatory contribution of 5% of the employees' relevant income for the benefit of the employees. Self-employed persons are required to make mandatory contributions of 5% of their relevant income.
 
The amount of mandatory contributions is subject to the Min and Max RI Levels, which are required under the Ordinance to be reviewed at least once every four years.
 
The key components of the proposed mechanism are as follows:
  1. Adjustment approach & review/adjustment frequency
  • The proposed adjustment mechanism is an automatic one under which the Min and Max RI Levels would be determined at the same time every two years in strict accordance with the proposed adjustment benchmarks and other components to be prescribed in the Ordinance.
  1. Adjustment benchmarks
Min RI Level
  • The proposed adjustment benchmark would be 55% of the monthly median employment earnings of all employed persons (excluding foreign domestic helpers) aged 18 to 64.
  • Compared with the existing adjustment benchmark of 50% of the monthly median employment earnings, the new adjustment benchmark would incorporate a 5% gross up to ensure that after paying the 5% employee mandatory contributions, lower income workers would still have take-home pay equal to at least 50% of the monthly median employment earnings.
Max RI Level
  • The proposed adjustment benchmark would be the 90th percentile earnings of the monthly employment earnings distribution of all employed persons (excluding foreign domestic helpers) aged 18 to 64.
  • The exclusion of the earnings of foreign domestic helpers from the earnings data for the determination of the two proposed benchmarks is expected to better reflect the earnings distribution of local workers who are intended to be covered by the MPF System.
  1. Limit on adjustment magnitude
Min RI Level
  • The Min RI Level would be adjusted downwards or upwards in strict accordance with the adjustment benchmark.
Max RI Level
  • The Max RI Level would be adjusted downwards in strict accordance with the adjustment benchmark. However, every upward adjustment would be subject to a $5,000 limit on the magnitude of the increase, thereby striking a balance between helping the working population accumulate more retirement savings and not seriously aggravating the financial burden on employers and employees at any single point in time.
  1. Rounding mechanism
Min RI Level
  • The adjustment benchmark is proposed to be rounded up to the next $100.
Max RI Level
  • The adjustment benchmark is proposed to be rounded to the nearest $2,500.
An MPFA spokesperson said, "The MPFA has put forward this automatic adjustment mechanism for consultation after considering various factors, including our experience with the current adjustment mechanism. The proposed mechanism would keep contribution levels better aligned with the earnings distribution of the working population and economic conditions, and enhance the efficiency of the MPF System."
 
The Consultation Paper can be downloaded from the MPFA website, or obtained from MPFA offices. Members of the public are invited to submit comments on the proposal on or before 5 March 2015.
 
Responses can be submitted online via the MPFA website. Interested parties can also fill in the form entitled "Response to Consultation Questions" (attached to the Consultation Paper) and return it to the MPFA by mail, fax or email.
 
– Ends –
 
23 January 2015
 
Appendix I: Comparison of the current and the proposed adjustment mechanisms
Appendix II: History of adjustments to the Min and Max RI Levels
 
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