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Ageing Population
Hong Kong has a rapidly ageing population. In 2004, the proportion of the population over the age of 65 was around 12 percent, but by 2033 this is projected to rise to 27 percent. This is due to both a low birth rate and increasing life expectancy in Hong Kong. Life expectancy is now much greater than the global average: over 84 for women and almost 79 for men. The number of working age adults for each person over 65 will drop from around six now to close to two by 2033. This ageing population means the working population of the future will have a much larger number of retirees to support.
Before the implementation of the MPF System, only about one-third of the Hong Kong workforce had some form of retirement protection. Such retirement protection arrangements included statutory pensions and provident funds for civil servants and school teachers, and retirement schemes set up by employers voluntarily for their employees. It was becoming clear that these arrangements were inadequate to provide for the entire ageing workforce over the long term.
MPF Schemes
The debate for a suitable retirement protection system in Hong Kong has gone on since the 1960s. A number of different systems were proposed, including privately managed provident funds, a central provident fund, and a pay-as-you-go type of benefit system. In 1994, the World Bank published the report "Averting the Old-Age Crisis: Policies to Protect the Old and Promote Growth", in which a three-pillar approach to protection for the aged was put forward. The three pillars were:
- a publicly managed, tax-financed social safety net;
- a mandatory, privately managed, fully funded contribution scheme; and
- voluntary personal savings and insurance.
The MPF System in Hong Kong was designed to form the second pillar of this approach for retirement protection. In 1995, the Mandatory Provident Fund Schemes Ordinance (MPFSO) was enacted, supplemented by subsidiary legislation passed in 1998, 1999 and 2000. The MPF System was launched in December 2000.
ORSO Schemes
Before the implementation of the MPF System, a number of Hong Kong employers had been operating retirement schemes voluntarily to provide retirement benefits for their employees. These voluntary schemes, regulated under the Occupational Retirement Schemes Ordinance (ORSO), have continued to operate in many cases. The features of the schemes, including the contribution level, choice of investment options and vesting scale of accrued benefits, are governed by the individual scheme rules. Please click here for more detailed information on ORSO schemes.
To tie in with the implementation of the MPF System, ORSO schemes that fulfill certain conditions could, prior to the launch of the System, apply for exemption from MPF requirements. Existing members of an MPF-exempted ORSO scheme, as well as new employees eligible to join an MPF-exempted ORSO scheme after the commencement of the MPF System, have a one-off option to choose between the ORSO scheme and an MPF scheme. Where an ORSO scheme has not been granted MPF exemption, both existing and new employees must join an MPF scheme.
Please click here for a comparison between MPF and ORSO schemes.
Employed Population Covered by Retirement Schemes
With the MPF System put in place, around 85% of the total employed population are now covered under either MPF schemes, ORSO schemes, statutory pensions or provident funds (such as those for civil servants or public school teachers).
Employed Population by Type of Retirement Schemes Enrolled
(as at September 2006)
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