The Legislative Council has passed today the proposal to provide tax deductions to those who make MPF voluntary contributions, to encourage more people to make additional personal contributions for their retirement savings. The new arrangement gives effect to the maximum tax deductible limit of $60,0001 each year per taxpayer. According to the government's estimates, a single taxpayer who makes $60,000 a month with a 17% standard tax rate can save $10,200 in taxes under the new arrangement.
At present, MPF members can apply for tax deductions for "mandatory contributions" made, with a maximum deductible limit of $18,000 each year. However, "voluntary contributions" are not tax deductible. Upon the passage of the new policy, tax deductions will be extended to "voluntary contributions", offering a new tax incentive to the public. In fact, more and more people have been using "voluntary contributions" to increase their retirement savings. According to the statistics released by the Mandatory Provident Fund Schemes Authority (MPFA), 83,000 employees have made "voluntary contributions" in 2017, contributing to a total contribution amount of $1.4 billion2.
An Overview of Tax Deductible Voluntary Contributions (TVC)
• Who can open an account: holder of employee account, personal account, MPF-exempted ORSO account.
• Independent account: an individual account for TVC needs to be set up
• Make your own fund choice: members can choose funds in accordance with their individual needs
• Flexible contribution: members can set their own contribution amount and method, either by a lump sum or monthly payment by autopay
• Withdrawal arrangement: same arrangement as mandatory contribution3
1 The relevant maximum tax deductible limit is an aggregate limit for qualifying deferred annuity premiums and tax deductible MPF voluntary contributions
2 The MPFA: Statistical Analysis of Accrued Benefits Held by Scheme Members of Mandatory Provident Fund Schemes (Sept 2018)
3 The withdrawal of MPF benefits is only allowed when scheme members reach the age of 65, as stipulated in the Mandatory Provident Fund Schemes Ordinance. However, there are circumstances under which accrued benefits may be paid before members reach the age of 65, provided that specified conditions can be met. The circumstances are: 1) early retirement at age 60 or above; 2) permanent departure from Hong Kong; 3) total incapacity; 4) terminal illness; 5) a small balance of $5,000 or less in a MPF scheme; or 6) death.