In ORSO vs MPF, planning for retirement is important, especially in Hong Kong, where high living costs and longer life expectancy make life essential. Two significant schemes in Hong Kong are the MPF (Mandatory Provident Fund) and ORSO (Occupational Retirement Schemes Ordinance) schemes offered by employees from employers.
If you are unsure about these two different retirements in Hong Kong, which suits you best (MPF vs ORSO)? Don’t worry—we‘ve covered you with a breakdown of these two schemes and everything you need to know for a secure retirement.
What is the ORSO?
ORSO, the abbreviation of Occupational Retirement Schemes Ordinance, refers to the enterprise-pushed retirement scheme. It was introduced in 1993 as an employer regulatory retirement scheme to supply the organisation with flexibility for local and expatriate employees.
Key Features Of ORSO Schemes
ORSO is led for employer retirement plans for specific business models and employee requirements.
Here’s a closer look at how they work:
- Customisable Structure: Employers who take part in ORSO can design schemes based on their company culture, business goals and employee demographics. From contribution levels to investment funds and retirement payment options, they have the flexibility to distribute based on their unique circumstances.
- Voluntary Participation: Unlike MPF, ORSO is not mandatory for participation in retirement plans. Employers can choose and set the schemes, and even employees can join them based on agreed-upon decisions. Their voluntary nature makes them negotiate the terms if the benefits are greater than the standard MPF contribution.
- Defined Benefit or Defined Contribution: Employees can provide ORSO contributions based on either defined benefits, such as salary or years of service, or defined contributions, such as pre-determined or invested amounts.
ORSO is popular in multinational corporations (MNCs) or businesses that want to provide competitive benefits for retaining and attracting top talents.
Eligibility Criteria For ORSO
One of the defining features of ORSO is that its eligibility criteria differ from those of universal MPF. Because ORSO is employer-driven, the rules of eligibility are quite different.
- Age Criteria: Unlike MPF, the ORSO scheme is not limited to age groups between 18 and 64. However, people involved in businesses or MNCs join to establish the scheme. The eligibility criteria are defined based on the specific groups given by the employer, such as senior management or expatriates.
- Exemptions from MPF: Employees who meet the regulatory guidelines of ORSO may be exempt from MPF contributions. This is due to the high-earning employees being limited to the capped contribution of MPF, which is restrictive.
- Optional Membership: Participation is optional. Whether an employer plans for an ORSO scheme, the employees have the right to opt if they need to join based on the specific terms of the scheme.
Advantages and Disadvantages of ORSO
Advantages of ORSO
- Customized retirement benefits for employees
- Adequate employee retention and satisfaction.
Disadvantages of ORSO
- Administrative complexity leading to costly maybe with employers.
- Not possible for all business sizes.
These features of ORSO make it better suited for companies requiring flexibility and international employees who need to stand out from MPF.
What is MPF?
Mandatory Provident Fund (MPF) is the government’s regulatory retirement plan for Hong Kong employees. It is the cornerstone of Hong Kong’s retirement plan and contributes to the financial safety net for self-employed individuals and employees in later years. The aim of the Hong Kong government was straightforward: claiming that employees should save for retirement in a systematic and regulated way.
How Does MPF Work in Hong Kong?
- Who Contributes? MPF contributions must be compulsory for both employers and employees. Contributions are 5% of the employee’s monthly income, with a combined cap of HK$3000 (HK$1500 on each side).
Learn More: MPF Contributions From Employers & Employees
- Who Needs To Participate? All professionals aged between 18 to 64 working either part-time or remotely, even self-employed, are subjected to contribute to MPF unless the exempted members.
- How Are Contributions Used? Funds are going to different investments on your choice, until you reach to specific age of retirement or leaving Hong Kong permanently you meet with withdrawal options.
Pros and Cons of MPF Schemes
Pros
- Assurance of compliance with the law at the retirement age
- A standard contribution standalone the management straightaway
Cons
- Employees can offer limited investment options.
- Inflexibility in withdrawal options.
Why To Choose ORSO Over MPF? (and Vice Versa)
Things To Keep in Mind
Company Size: Large enterprises can easily adapt with the ORSO schemes which makes them relevant to large and complex corporate structures.
Employee Demographics: Firms or organizations with expatriates or different staff needs ORSO is the best to choose as it is easy to use.
Administrative Capacity: MPF is the best to use for SMEs.
Case Examples
A multinational company use ORSO that makes competitive retirement benefits to it larger workforce.
An SME uses MPF that offers compliance for it limited administrative resources easily.
Integrate Your Compliance of ORSO and MPF With An Effective Payroll Software!
Key Takeaways
Knowing the basic differences between the MPF vs ORSO both have its own impacts. By adhering an effective payroll management system in an SME or large enterprise you can effectively manage the compliance of your employees seamlessly and automate the payroll by distributing equally the retirement contributions based on the compliance aligned in your firm. In Hong Kong, MPF is the mandatory retirement scheme among ORSO where if not aligned with it may lead to consequences such as banishment to the employer.
To know more about the MPF vs ORSO integrating with an effective payroll software contact our professionals.
Frequently Asked Questions
- Can An Employer Offer Both ORSO and MPF?
Yes, employers can offer both retirement schemes but must allow compliance with relevant regulations.
- What Are The Consequences Of Non-compliance With MPF Policies?
Employers may allow to surcharge, penalties, or prison moves if and only failing to conform with MPF requirements.
- How Do ORSO and MPF Impact Employee Retention?
ORSO enhance retention by providing tailored benefits in retirement, whereas MPF gives basic retirement coverages.
