Job Change, a Small Account and Voluntary Contributions
Ms Chan, aged 45, has just resigned from Employer A after six years. Her accrued benefits in A's master trust scheme are HK$420,000: HK$60,000 from her own mandatory contributions, HK$300,000 from Employer A's mandatory contributions and HK$60,000 from voluntary contributions that are not tax-deductible voluntary contributions (TVC). She also has an old personal account with HK$4,700 from a previous employer. She starts with Employer B next month; B uses a different master trust scheme. Ms Chan wants to (i) withdraw the HK$4,700 in cash to repay credit-card debt, (ii) move the HK$420,000 to a scheme of her own choice rather than B's scheme, and (iii) take out the HK$60,000 voluntary contributions now. She is not leaving Hong Kong, is not terminally ill or totally incapacitated, and has not reached age 65. She asks an intermediary whether she can do all three.
1. Advise Ms Chan on requests (i) and (ii). Explain the preservation rule, the small-balance exception and the Employee Choice Arrangement.
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Request (i): withdrawing HK$4,700. The small-balance withdrawal is available only where the member's total accrued benefits across all MPF schemes do not exceed HK$5,000 and the other statutory conditions are met. Ms Chan's total accrued benefits are HK$424,700, far above HK$5,000. The HK$4,700 account cannot be cashed out simply because that one account is small. Preservation applies until age 65 or a permitted early-withdrawal ground, none of which applies here.
Request (ii): transferring HK$420,000. Under the Employee Choice Arrangement, an employee may transfer accrued benefits attributable to mandatory contributions from the employer's scheme to an MPF scheme of the employee's own choice, subject to the ECA rules, including the once-per-calendar-year limit. Employer mandatory contributions vest immediately, so the HK$300,000 employer share is transferable together with her HK$60,000 employee mandatory share-HK$360,000 in total. The HK$60,000 voluntary contributions are not automatically within the ECA; their transferability depends on the scheme's governing rules and vesting provisions.
The transfer does not remove the need to join Employer B's scheme for future employment. B must still enrol her, and future mandatory contributions will go to B's scheme unless a further valid choice is made.
2. Advise on request (iii). What difference would it make if the HK$60,000 were tax-deductible voluntary contributions (TVC)?
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For ordinary voluntary contributions, the MPF preservation rules do not apply in the same way as for mandatory contributions. Whether Ms Chan can withdraw the HK$60,000 now depends on the scheme's governing rules, the vesting scale for voluntary contributions and any conditions in the offering document. Some schemes permit withdrawal of voluntary contributions at any time; others impose vesting or retention conditions. The intermediary must check the scheme rules rather than assume the money is freely available.
If the HK$60,000 were TVC, the position would change materially. TVC are subject to preservation and may be withdrawn only at age 65 or on a permitted early-withdrawal ground such as terminal illness, total incapacity, permanent departure from Hong Kong or a qualifying small balance. None of those applies to Ms Chan. She could not take the TVC now simply because she has changed jobs.
The intermediary should explain the difference between mandatory contributions, ordinary voluntary contributions and TVC, and should not submit a withdrawal request until the scheme's rules and the contribution type are verified. The client should also be warned that transferring or withdrawing may affect fee arrangements and any guarantee conditions.
3. What should the intermediary document before executing any transfer, and what client risks should be highlighted?
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Before executing, the intermediary should document the client's instructions, the source and type of each contribution, the scheme rules on voluntary contributions, the ECA eligibility check (including whether she has already made an ECA transfer in the same calendar year), the destination scheme, and the fees and switching costs of both schemes. The intermediary should keep a record of the client's objectives, investment horizon and risk tolerance, especially if the destination scheme differs materially from her existing allocation.
Risks to highlight include: the HK$4,700 cannot be withdrawn; the ECA transfer may take time and may be subject to a cut-off date; the destination scheme may have different fees, fund choices and guarantee conditions; and the voluntary contributions may be locked in by scheme rules. The intermediary should also state clearly that the transfer is not free money and that the client remains responsible for choosing a suitable destination scheme. A written confirmation from the client is prudent.