Mandatory Provident Fund

The Mandatory Provident Fund (Chinese: 強制性公積金), often abbreviated as MPF (強積金), is a compulsory saving scheme (pension fund) for the retirement of residents in Hong Kong. Most of employees and their employers are required to contribute monthly to mandatory provident fund schemes provided by approved private organisations, according to their salaries and the period of employment.

In traditional Chinese society, a retired person was supposed to be supported by his family and his savings, thus an extended family formed a safety net. Life expectancy was comparatively low compared to today.

As Hong Kong become a developed entity, life expectancy in the territory improved greatly and the birth rate dropped significantly. Extended family was broken into nuclear family. By the late 1990s, only 29% of Hong Kong's three-million workforce was covered by formal retirement provisions, Hong Kong's social security system is faced with the demographic challenge of a growing number of elderly people in the future. There were some calls to establish a central provident fund and heated debates among government, politicians and trade unions in the early 1990s.

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:

After some 30 years of debate on how to provide financial security for the ageing Hong Kong population, the British Hong Kong Government legislated on a mandatory, privately managed fully funded contribution scheme in 1995 along the lines of the second pillar defined in the World Bank report. Legislators representing the business sector refused to back the MPF legislation unless an offset mechanism was included to allow employers to use amounts paid by them to make long-service payments or severance to staff. Under the legislation, occupational schemes are unlike publicly run national provident funds found in other countries, and those schemes marketed to the public as mandatory provident fund (MPF) are established and run by financial institutions.

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