A pension scheme is a savings vehicle that allows you to contribute money in the long term, i.e.. your retirement. In addition to enabling, you to save money, a pension plan allows you invest in a mixture of bonds, stocks and property. It is prudent to save money for your later years, and pension savings will help you achieve this. During your working years, you should consistently set aside a portion of your salary. When you reach your chosen retirement age or scale back your working time, this will in all probability provide you with an income. The purpose of a pension is to provide security as you reach retirement. Pension plans come in several forms. Your employer may manage some, while you might set up pension plans on your own. You can utilise other tax-efficient savings plans, such as individual savings accounts (ISAs) in the UK or save into different schemes if you have already invested in one, overseas for example.

‘Is it too late to start saving into a pension?’

It’s a good idea to contribute to a pension regardless of your age, especially if your company is willing to match your contributions.

It’s also a tax-efficient way to save money, and you may be eligible to receive a tax-free lump payment for all or part of the savings, depending on where you are located.

We will cover this below.

 

Pension in Hong Kong

The personal pension or workplace equivalent in Hong Kong is the Mandatory Provident Fund (MPF) under the MPFSO. This is a mandatory pension which you must contribute to. An MPF scheme requires 5% of your relevant monthly income to be contributed to the fund by both your employer and your monthly salary. As of the 1st of June 2014, the highest required payment for both your employer and your monthly salary is HK$1,500 per month. Thus, the maximum monthly relevant income level for contribution purposes is HK$30,000. Any higher income level will be capped at HK$1,500 per month for contribution purposes.

You may be exempt from making mandatory contributions if your relevant monthly salary is less than HK$7,100 (as of the 1^st November 2013). Your employer must still contribute, nevertheless, in an amount equal to 5% of your relevant monthly salary.

The only voluntary contribution in Hong Kong eligible to tax deductions is the Tax-Deductible Voluntary Contributions (TVC). You can apply for a TVC if you have an MPF scheme. In each Hong Kong financial year, you can deposit a maximum tax-deductible limit of HK$60,000. This could save you up to HK$10,200. To find out more about this, check out our other article here.

Many of us have multiple MPF Employer accounts from different employers. If you have a ‘’lost’’ or forgotten MPF account, sit down over a cup of coffee to retrieve your username and password. If you have multiple accounts, it is easy to consolidate your MPF accounts into one. If you need assistance from one of our financial advisors, email us here.

Alternatively, there are employer schemes called Occupational Retirement Scheme Ordinance (ORSO). ORSO’s offer more flexibility than MPF schemes, they allow employers to provide defined benefits or contributions to their employees. Speak to your HR department or if you would like to discuss this with one of our financial advisors, contact us here.

 

Pension in the UK

There are many different pension types in the UK, such as the state pension, defined benefit and defined contribution pension schemes. Did you know, there are over 1.6 million workplace pension pots that are ‘forgotten’? In order to keep things simple, the following blog post will describe in detail a defined contribution pension scheme. These are pension schemes which can give you an element of control of your investment allocations. An example of this is the Self-Invested Personal Pension (SIPP).

A SIPP gives you more control of how much you can save, when and how much is invested. Remember, the value of your investments does change, and you could experience falls in value as well as gains, especially over shorter time periods. The unique difference in a pension, such as a SIPP in the UK, is that it offers greater tax benefits. If you have no earnings, you can still contribute up to £2,880 each tax year and receive a tax benefit of up to £720. That is a 20% uplift from your contributions on day one. There a very few investment opportunities as good as this. Higher rate taxpayers can claim further tax relief.

The tax relief isn’t received into your SIPP immediately, and it isn’t automatically invested for you. It can take up to 2 months to administer, and many people set calendar reminders so when the tax relief does hit your account, you can invest it straight away, minimising the days out of the market.

If you are a parent, you can open a Junior SIPP for your children. Once they turn 18, they will need to complete forms in order to transfer the Junior SIPP into a personal SIPP.

 

Is it right for me?

Personal pensions give you the opportunity to choose your own investment strategy. This gives you the flexibility to choose what you want to invest in. Often, this can be overwhelming, and you may not know what to choose. Other blog articles on our website can help guide you in the right direction, however it’s always good practice to speak to a qualified financial advisor in Hong Kong or perhaps the UK who deals with pension planning on a day-to-day basis.

A pension is designed for long-term savings, in retirement. Therefore, notwithstanding the exceptional benefits, the downside is, you are essentially locking up your funds for many years and the benefits will likely suffer taxation on drawdown, aged 55 (57 from 2028) Terminal illness may allow for earlier access. Remember, you can take up to 25% of the value (up to £268,275) in a tax-free lump sum BUT advice on this is highly recommended. Current legislation must be considered.

In Hong Kong, there are several circumstances which you can withdraw your MPF:

• Early retirement
• Small balance accounts
• Permanent departure
• Terminal Illness
• Total incapacity

Understanding which platform, you have access to, and how much you invest into each fund is vital. Speaking to a financial advisor about what you should be investing in and using their expertise can help ease the burden.

Financial planners in Hong Kong, can take care of your overall ‘family’ financial portfolio. Financial planners take a holistic view of your portfolio, and good planners can add value in many areas of financial planning. If you have a ‘forgotten’ pension or would like further analysis, get in touch with one of our financial planners here.