Employer action code: Monitor
The Mandatory Provident Fund Schemes Authority (MPFA) is expected to propose an increase in the covered earnings ceiling for employee and employer MPF mandatory contributions. The value of MPF benefit accruals has been gradually eroded by inflation as the ceiling on covered earnings has not kept pace with income increases. The monthly ceiling started at 20,000 Hong Kong dollars at the MPF’s inception in 2000. It was increased in 2012 to HK$25,000 and then HK$30,000 in 2014. According to OECD projections, net retirement income from the MPF is estimated to replace 43%/40% (male/female) of preretirement net earnings, for an employee who is a new entrant to the workforce and whose earnings match the national average. This compares to an average replacement ratio of 63% for OECD countries.
Key details
The MPFA recently engaged with the various stakeholders as part of its regular four-year review, finding an overwhelming consensus that both the minimum and maximum earnings thresholds for mandatory contributions should be revised to reflect the increases in prices and wages over the past decade. The MPFA is expected to propose significant increases in these amounts when it provides a full report of the review and its recommendations to the government in mid-2026. It has been suggested that the MPFA is considering an increase in the monthly earnings ceiling to HK$40,000 and an increase in the lower threshold to HK$10,500 (up from HK$7,100); workers with monthly earnings below the lower threshold are not subject to mandatory MPF contributions, but their employers are.
Employer implications
An increase in the earnings ceiling would raise MPF mandatory contributions related to employees earning over HK$30,000 per month, though employers that have existing arrangements for making voluntary employer MPF contributions (in most arrangements, there is no cap on covered earnings) may be less affected.
It is worth noting that the increase in the monthly earnings ceiling could affect employer costs in other ways. For example, employees are automatically fully vested immediately in mandatory employer MPF contributions but not in voluntary employer contributions, which are typically subject to a 10-year vesting schedule. Also, companies are permitted to reduce their liability for mandatory Long Service Payments (LSPs) for retirement and involuntary termination by any voluntary MPF contributions they make; if mandatory MPF contributions increase then voluntary MPF contributions will automatically decrease, which would then reduce the available offset to LSPs (i.e., increase LSP liabilities).
Employers should review the potential financial impacts, in terms of contribution costs and accounting provisions, of expected increases in the monthly earnings ceiling and floor.
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