Regulation of state and supplementary pension schemes in Hong Kong: overview

A Q&A guide to pensions law in Hong Kong.

The Q&A gives a high level overview of the key practical issues including: state pensions; supplementary pensions; funding and solvency requirements; tax on pensions; business transfers; participation in pension schemes; and employer insolvency and overall scheme solvency.

The Q&A is part of the Multi-jurisdictional Guide to Pensions law. For a full list of jurisdictional Q&As visit www.practicallaw.com/pensions-mjg.

Gareth Thomas and Helen Beech, Herbert Smith Freehills
Contents

Pensions

State pensions

1. Do employers and/or employees make pension contributions to the government in your jurisdiction?

Contributions paid to the government

There is no government or state pension in Hong Kong and therefore there is no requirement to make pension contributions to the government. Employers must however enrol employees in a Mandatory Provident Fund (MPF) scheme in Hong Kong and both employers and employees must make monthly mandatory contributions to the MPF scheme, which is privately managed by a licensed trustee under the MPFSO.

Following the implementation of the Employee Choice Arrangement on 1 November 2012, an employee can elect to transfer the accrued benefits derived from the employee’s mandatory contributions to any other MPF scheme of his choice once a year.

MPF contributions

The contribution payable by each of the employer and employee to the MPF scheme is 5% of the employee's monthly earnings, up to a maximum monthly contribution of HK$1,250 (HK$1,500 from 1 June 2014).

Taxation of MPF contributions

Employees' mandatory contributions are tax deductible, subject to the maximum amount of HK$15,000 a year. Employers' contributions are tax deductible, up to 15% of the employee's yearly emoluments.

Payment of MPF benefit

The payment to an employee from an MPF scheme depends on the total accrued benefits attributable to contributions made to the scheme on behalf of the employee. The benefits from an MPF scheme attributable to mandatory contributions by the employer and the employee may not generally be withdrawn by the employee until he dies, reaches retirement age, suffers from incapacity or permanently departs from Hong Kong.

If the employer pays a severance payment or long service payment in accordance with the Employment Ordinance (EO) to the employee, on termination of employment, the employer can apply to the MPF trustee for re-payment of that amount from the employee's accrued MPF benefits derived from employer's contributions.

 

Supplementary pensions

2. Is it common (or compulsory) for employers to provide access, or contribute, to supplementary pension schemes for their employees? If they do, are they:
  • Occupational (that is, linked to an employment or professional relationship between the plan member and the entity that establishes the plan)?

  • Personal (that is, not linked to an employment relationship, established and administered directly by a pension fund or a financial institution acting as pension provider, where individuals independently purchase and select material aspects of the arrangements, though the employer may make contributions).

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
3. Where supplementary schemes are provided, do these schemes provide pensions, the value of which:
  • Is linked to the employee's salary (defined benefit)?

  • Is linked to employer and/or employee contributions and investment return on those contributions (defined contribution)?

It is not compulsory for employers to provide access to, or contribute to, supplementary pension schemes for their employees. Some employers (particularly foreign corporations) contribute voluntarily to supplementary pension schemes known as Occupational Retirement Schemes Ordinance (ORSO) schemes. Alternatively, employers can make additional contributions (voluntary contributions) to the MPF scheme, above the mandatory contributions (see Question 1).

The benefits from an MPF scheme attributable to voluntary contributions by the employer and the employee can generally be withdrawn by the employee in accordance with the scheme rules. See Question 1 for the re-payment of severance and long service payments from the employee’s accrued benefits derived from employer’s contributions to an MPF fund.

Linked to the employee's salary

It is unusual for employers in Hong Kong to contribute to defined benefit schemes, in which the ultimate value of the benefit is linked to the employee's salary because this exposes employers to the risk of having to top up the scheme to meet the guaranteed benefit.

Linked to employer and/or employee contributions

It is usual for the ORSO scheme or the MPF scheme applicable to voluntary contributions to be a defined contribution scheme. In these schemes, the employer (and/or the employee, if the employee makes additional contributions) agrees to make a defined contribution to the scheme, but the ultimate value of the benefit depends on the performance of the underlying investments attributable to the contributions.

 
4. For supplementary pensions:
  • Is there a minimum period of service before workers are entitled to receive vested rights?

  • Are there any legal requirements for schemes or providers to index pensions in payment and/or revalue pension rights in deferment?

Minimum period of service

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Legal requirement to index

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 

Funding and solvency requirements

5. In relation to supplementary schemes, are these generally funded or unfunded? If funded, are there any solvency requirements on the sponsoring employer or provider?

Funded or unfunded?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Solvency requirements for funded schemes

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
6. In relation to access for members to the funds in their supplementary pension scheme:
  • To what extent can members transfer their funds to another pension scheme?

  • How do members normally take the benefit of their funds (for example, lump sums, income withdrawals (drawdown), life annuity arrangements)?

  • What are the legal restrictions upon access to the funds (for example, age)?

  • What are the common arrangements for early retirement and ill-health retirement?

  • Are dependants of deceased members entitled to receive benefits payable on the member's death? What form do these commonly take?

Member's transfer of funds

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Taking pension benefits

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Legal restrictions

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Early and ill-health retirement

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Dependants' benefits

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
7. Is there a regulatory body that oversees the operation of supplementary pension schemes? Do any other governance regimes apply to supplementary pension schemes?

Regulatory body

The Mandatory Provident Fund Schemes Authority (MPFSA) is a regulatory body which regulates and supervises the operation of pension schemes under the two main ordinances governing supplementary pension schemes:

  • MPFSO.

  • ORSO.

The Securities and Futures Commission (SFC) is involved in the authorisation of the offering documents and the marketing materials of master trust schemes, industry schemes and pooled investment funds and in approving investment managers of these products.

MPF intermediaries (persons engaged in selling MPF schemes or advising clients on constituent funds or underlying approved pooled investment funds of MPF schemes) are supervised by the Monetary Authority, Insurance Authority and SFC with the MPSFA acting as lead regulator and co-ordinator.

Regulatory framework

The MPFSA has primary responsibility for regulating and supervising MPF schemes (including approved trustees of MPF schemes). In addition, as Registrar of Occupational Retirement Schemes, the MPFSA is also responsible for overseeing the operation of ORSO schemes.

 

Tax on pensions

8. Are any tax reliefs available on contributions to supplementary pension schemes (by the employer and employees)?

Tax relief on employer contributions

Employers' monthly MPF or ORSO scheme contributions are tax deductible, up to 15% of the employee's annual salary.

Tax relief on employee contributions

Employees' mandatory contributions to an MPF scheme, or contributions to an ORSO scheme which would have been mandatory contributions if made to an MPF scheme, are tax deductible, subject to the maximum amount of HK$15,000 a year.

 
9. Are there any approval or registration requirements with the local tax authority where a supplementary scheme is established?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
10. What is the tax treatment of investments made by the scheme?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
11. What is the tax treatment of pension and lump sum payments made to members?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
12. Are there any other applicable tax charges on schemes?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 

Business transfers

13. Is there any legal protection of employees' pension rights on a business transfer?

Automatic transfer of pension rights

There is no automatic transfer of pension rights of an employee as a result of the transfer of the business in which the employee works. The new employer is obliged to enrol the employees in an MPF scheme and both the employer and employee must make monthly mandatory contributions to the scheme for the employee.

Other protection for pension rights

The transferor employer must notify the trustee of the MPF scheme about an employee's termination of employment. The employee can elect by appropriate notice to transfer the accrued benefits in his MPF scheme to a personal account in any other scheme of the employee's choice, to the transferee employer's MPF scheme or to a personal account in the transferor employer's MPF scheme. In addition, an employee can transfer his accrued benefits held in a personal account to any other MPF scheme of his choice at any time.

The previous MPF trustee must ensure that the employee's accrued benefits are properly transferred within 30 days after receiving the transfer request and must issue a transfer statement to the employee detailing the particulars of the transfer. The trustee of the new MPF scheme must also send the employee a confirmation stating the amount received from the previous scheme.

 

Participation in pension schemes

14. Can the following participate in a pension scheme established by a parent company in your jurisdiction:
  • Employees who are working abroad?

  • Employees of a foreign subsidiary company?

Employees working abroad

If a Hong Kong employee works abroad, the employer cannot make contributions to any overseas pension scheme because it is an offence for an employer to operate, contribute to or participate in a retirement scheme, or enter into a contract with its employees under which membership of an occupational retirement scheme is provided, unless that scheme has been registered as an ORSO scheme or an MPF scheme or granted exemption from registration. A profits tax deduction for an employer in relation to contributions to a retirement scheme on behalf of an employee is limited to contributions to a registered ORSO scheme or an MPF scheme.

If the employee's employment is governed by Hong Kong law, he can be registered in, and the employer and employee can contribute to, an MPF scheme. The MPFSA may however grant exemption from registration if the employee works wholly outside Hong Kong. The employee can be registered in, and the employer and employee can contribute to, an ORSO scheme, depending on the terms of the scheme.

The same tax reliefs in Question 4 are available to the employer and employee.

Employees of a foreign subsidiary company

If an employee of a foreign subsidiary comes to Hong Kong to work, the employer is not required to enrol the employee in an MPF scheme if the employee's employment is not governed by the laws of Hong Kong. In addition, an employee who comes to work in Hong Kong under an employment visa where the employment visa is valid for 13 months or less, or the employee is a member of a pension scheme outside Hong Kong, is not required to be enrolled in an MPF scheme.

The employee can be registered in, and the employer and employee can contribute to, an ORSO scheme, depending on the terms of the scheme.

 

Employer insolvency and overall scheme solvency

15. Is there any protection provided for pension scheme benefits where the sponsoring employer becomes insolvent? If so, who provides the protection, and how does this operate? If the scheme itself is underfunded, are there any funding obligations on connected or associated legal entities?

If the employer becomes insolvent, the MPFSA may collect relevant information from the employee and file a claim with the liquidator to recover any unpaid contributions for the employee.

 

Online resources

Department of Justice Bilingual Laws Information System

W www.legislation.gov.hk/eng/home.html

Description. This website is an electronic database of the legislation of Hong Kong. It is established and updated by the Department of Justice. The text of the legislation is up to date, except individual provisions that have a pencil mark before their headings. Amendments that came into effect on or after 15 January 2014 have yet to be incorporated in these provisions.



Contributor profiles

Gareth Thomas, Partner

Herbert Smith Freehills

T +852 2101 4025
F +852 2845 9099
E gareth.thomas@hsf.com
W www.herbertsmithfreehills.com

Professional qualifications. England and Wales, 1993; Hong Kong, 1998

Areas of practice. Employment; commercial litigation; insurance.

Recent transactions

  • Advising one of the world's largest container shipping companies on a complex cross-border High Court claim bought by a former employee (a managing director) over his dismissal and counterclaim against the employee for breach of fiduciary duties.
  • Advising one of the largest Asia-based independent private equity firms on a dispute involving the dismissal of a senior partner. Advising on negotiations and drafting complex termination documents.
  • Advising a global recruitment company seeking to restrain a team of ex-employees who resigned to start up a competing business in breach of their restrictive covenants.
  • Advising a global manufacturing company on a Labour Tribunal claim arising from the termination of the employee's employment for gross misconduct (making unauthorised payments to state owned entities in the PRC).
  • Assisting numerous clients with updating and standardising their employment documentation (including employment contracts restrictive covenants and share schemes).
  • Drafting service agreements, updating staff handbooks and negotiating employment terminations.

Languages. English

Helen Beech

Herbert Smith Freehills

T +852 2101 4114
F +852 2845 9099
E helen.beech@hsf.com
W www.herbertsmithfreehills.com

Professional qualifications. Western Australia, 2007

Areas of practice. Employment.

Recent transactions

  • Advising an international logistics company in relation to the on-boarding of its most senior regional executive.
  • Advising an international knowledge management service provider to negotiate the resignation of a senior executive.
  • Advising an international bank in relation to the termination of and litigation threatened by one of its employees.
  • Assisting a large international mining company with the day to day management of numerous workplace grievances and issues.
  • Advising in relation to a large corporate restructure, including transfers of employment, avoiding redundancy claims and merging of workplace policies and procedures.
  • Assisting in the management of equal opportunity and discrimination claims.

Languages. English


{ "siteName" : "PLC", "objType" : "PLC_Doc_C", "objID" : "1247921017808", "objName" : "Pensions in Hong Kong overview", "userID" : "2", "objUrl" : "http://us.practicallaw.com/cs/Satellite/us/resource/5-549-7950?null", "pageType" : "Resource", "academicUserID" : "", "contentAccessed" : "true", "analyticsPermCookie" : "2-34f33658:15b1a7b08b6:-6a12", "analyticsSessionCookie" : "2-34f33658:15b1a7b08b6:-6a11", "statisticSensorPath" : "http://analytics.practicallaw.com/sensor/statistic" }