[rb1234]

Hi All,

I've just started in my new job and one of the decisions I have to make is whether to go for an MPF or an ORSO pension scheme. There is a lot of documentation to go with each scheme but I'm a little confused about exactly which one to sign up for.

I'm moving from London to HK and expect to be living in HK for anything from 1 to 10 years or longer depending on how things go out there. Would the choice of scheme affect my tax situation ? Should I add voluntary contributions ?

I'm not too good with all this 'long term retirement' planning so any help would be appreciated.

Thanks
Rick

[chris_in_hk]

Hi Rick,

There's a number of key factors in deciding whether to go for the ORSO (company approved pension scheme) or the MPF (portable pension scheme here in Hong Kong). The first is the contributions from both yourself and the company. The company may contribute more to its ORSO than to an MPF. Also, the amount you can contribute to an MPF is capped. HK$10,000 a year if I remember.

With the MPF you can't get your money out unless you reach retirement age and/or leave the country permanently i.e. do not intend to return. I don't know if or how you would be taxed on this. I haven't looked into that area. MPF's are portable from one job to another in Hong Kong.

With ORSO's if you stay with the company for 10 or more years when you leave the company you get the money and won't be taxed on the amount. There's an MPF part of the ORSO so that bit you can't touch unless you reach retirement or leave the country (see above). I'm not 100% sure on this last part.

The company will have a vesting schedule saying how much of their contributions, and the gains from it, you can take when you leave. If it's more than 10% a year, the excess is taxable. Hence 10 years makes it 100% tax free.

You need to find out vesting schedules, amount of contributions, how MPFs are taxed and figure out whether you're likely to spend longer or shorter amount of time in HK.

There's too many variables and unknowns to say which one is better but in general the longer the time you intend to stay in HK and the bigger the contribution the company is paying to the ORSO, would tilt it in favour of the ORSO.

The only benefit to voluntary contributions is that you get the pension fund manager to invest it for you and that you're saving on a regular basis. There's no tax advantage. As there's no capital gains tax here in Hong Kong so you could just decide how to invest it yourself.

However, in the end, talk to your company's personnel department and find this all out! Ask them all the questions, as they'd be stupid to think you know the pension situation in Hong Kong, and you'd be stupid not to ask them.

[PDLM]

At least while you are a non-permanent resident it is also possible to opt out of either of these schemes by demonstrating that you invest in an essentially similar scheme elsewhere. I have done this for part of the time I was here by being in the company pension scheme back in the UK (defined benefits, so worth staying in as long as possible), and latterly by demonstrating that I have a long-term offshore savings plan under which I am more or less committed to a minimum monthly contribution far exceeding the MPF maximum until I will be 50 years old. This seems to have satisfied the relevant authorities, although I believe I will have to revisit this when I get PR.

The main benefit of opting out entirely is the complete control you get over your investments - the choice under MPF is really quite limited. Of course, it helps if you do a deal with your employer whereby they pay the equivalnet of the MPF matching contributions (i.e. their HK$1000 per month) to you directly as extra salary. There is no income tax benefit in HK of payments being classified as "pension contributions".