[MPF vs ORSO] A Full List of Differences | Reap

[MPF vs ORSO] A Full List of Differences

Jenny

3 min read

During your employment, you will need to fill out an MPF form, meanwhile, many employers also provide Occupational Retirement Schemes (ORSO schemes) for employees to choose between. So, what are the differences between these two schemes? Although they both offer retirement protection, they differ in terms of Investment Portfolio, Contribution Arrangements, and withdrawal benefits, etc. REAP has compiled the below information on MPF and ORSO schemes for you to better understand their differences. 

  1. What is MPF?
  2. what is ORSO?
  3. Investment Portfolio
  4. Contribution Arrangements
  5. Vesting Scale
  6. Contribution Withdrawal
  7. Summary

What is an MPF?

The Mandatory Provident Fund (MPF) is a retirement protection scheme legislated for the ageing workforce in Hong Kong to save up for their retirement. All general/temporary employees and self-employed persons aged 18 to 64, except for exempt persons, are required under the Mandatory Provident Fund Schemes Ordinance (MPFSO) to join an MPF scheme. Employers must enrol their employees in MPF schemes, at the same time, both employees and employers are obliged to make regular contributions. Employees and employers are both required to make mandatory contributions of 5% of the employee’s relevant income, for a total of 10%, into the employee’s MPF account. Contributions are generally made once a month.

What is ORSO?

Before the launch of MPF, many companies provided their very own ORSO schemes as employees’ retirement benefits. After the implementation of MPF, however, some employers still keep their ORSO in place for employees to choose from, with a view to provide a more comprehensive retirement protection, while also retaining invaluable talents. Although they are both retirement protection schemes, there are significant differences in their Investment Portfolios, Contribution Arrangements, and Contribution Withdrawal, etc.

Investment Portfolio

MPF allows employees to choose their own fund portfolio under the employer's choice of plan and taking into account their own needs and risk tolerance levels. Therefore, if you want to control the risk level of your retirement plan, it is recommended to choose an MPF scheme.

Contribution Arrangements

Under the MPFSO, employees and employers are required to make regular mandatory contributions of 5% of the employee’s relevant income, subject to a cap of HKD 1,500. Except for exempt persons, employers are required to make contributions regardless of the length of employment, and self-employed persons are also required to join the scheme on their own. In contrast, ORSO scheme allows contributions only by the employers or jointly by the employers and the employees, with the details of contribution, such as the contribution amount, determined by the employer. Therefore, the arrangements may vary in different companies. Please enquire with HR on this matter upon employment.

Vesting Scale

The biggest difference between MPF and ORSO is the “Vesting Scale” of the schemes, which defines the distribution of benefits among members of the schemes. Vesting Scale specifies the percentage of benefits derived from the employer's contributions based on the employee's length of service, usually based on the member's length of service and salary at the time of employment termination. Generally speaking, if an employee has worked for the company for less than 3 years, he or she is not entitled to any of the employer's ORSO contribution. Say if you have been working with the company for five years or more, you will enjoy 50% of the Vesting Scale, 60% if six years, and so on. However, all employers’ or employees’ mandatory contributions are immediately vested in the employee. Of course, the contributions must be kept until age 65 or withdrawn only under certain circumstances permitted by law.

Contribution Withdrawal

The withdrawal process for MPF is very simple and the total amount of contributions can be withdrawn if you reach 65 years of age or under other circumstances specified in the law such as immigration. The withdrawal process for ORSO is much more complicated. After working out the employees’ benefits under the Vesting Scale, the trustee needs to calculate the "minimum MPF benefits"(MMB) and transfer this amount to your designated MPF account before the rest can be withdrawn. The income level is now capped at HKD 30,000.

MMB is calculated according to the smaller of the following two calculations

  1. the amount of OSRO accrued from employee contributions + the amount of ORSO accrued from employer contributions based on the "Vesting Scale";

  2. 1.2 × the final average monthly relevant income × the length of service after the launch of MPF

Example

Monthly Relevant Income (HKD)

40,000

Contribution Amount
(Both Employer and Employee)

5% of the Employee’s Relevant Income

Length of Service (Years)

8

Vesting Scale (10% p.a.)

80%

Employee Account Balance (HKD)

40,000 × 5% × 12 × 8 = 192,000

Employee Account Balance (HKD)

40,000 × 5% × 12 × 8 = 192,000

Accrued Based on Vesting Scale (HKD)

$192,000 × 0.8 = $153,600

MMB (HKD)

1.2 × 30,000 × 8 = 288,000

OSRO Benefits (HKD)

192,000 + 192,000 × 0.8 = 345,600

Transfer of MMB to an MPF account of your choice (HKD): 288,000

Withdrawal in cash (HKD): 345,600 - 288,000 = 57,600

If the MMB are greater than the ORSO Benefits, all the money in ORSO will then be transferred to the MPF scheme

Summary

Before choosing your retirement plan, remember take its Investment Portfolio, Contribution Arrangements and Withdrawal Procedures into consideration. If the company offers both MPF and ORSO schemes for employees to choose from, employees need to give written notice of their decision within 30 days upon employment. Otherwise, the employee will be automatically enrolled in an MPF scheme which may not be modified in the future.

If an employer needs to make MPF and ORSO contributions when facing cash flow problems, pay all expenses with credit card through REAP, enjoy up to 58 days interest-free payment, and fully utilise your pre-approved credit in your personal or business credit cards now!