Martha recently changed jobs and started to work in a bank. Her new employer gave her the option of joining either an Occupational Retirement Scheme Ordinance (ORSO) or a Mandatory Provident Fund (MPF) scheme. In her previous job, she had been a member of an MPF scheme and had no clear idea about ORSO or how contributions are made. Therefore, she decided to get some advice and raised the subject at a dinner party with a few of her friends.
Though none of them was an ORSO scheme member, that didn't stop them giving their opinions! One of them thought that employees had to make no contributions to an ORSO scheme and suggested choosing it for that reason. Another mentioned having heard that ORSO scheme members had to work for at least five years before being entitled to their employers' contributions. He asked if Martha was sure of being with the bank for that long. Not too surprisingly, the discussion was inconclusive and Martha went home more confused than ever.
One friend, though, had made a very helpful suggestion. "Why not ring up the Mandatory Provident Fund Schemes Authority (MPFA) hotline?" she said. "I once asked them how best to manage my numerous MPF preserved accounts and got a very clear explanation from the staff there. Maybe they can help to explain the main differences between the two schemes."
Martha wasted no time and called the MPFA hotline the following day. The advice she received was very clear. "Your employer has an obligation to provide you with sufficient information to facilitate your choice between an ORSO scheme and an MPF scheme within a reasonable time," she was told by an expert at the MPFA's call centre. "As the terms in an ORSO scheme can vary between employers, you should contact your company's HR department for extra details if you are in any doubt."
Martha was also advised to take into account her own personal circumstances and to pay special attention to certain relevant areas. These included the vesting of the employer's contributions, the withdrawal and calculation of accrued benefits, and selection of the investment portfolio. The MPFA member of staff also highlighted the key differences between the two schemes as summarised in the table on this page.
|Q&A on key differences between ORSO and MPF schemes|
|Q1 ||How do the schemes differ in terms of the vesting of the employer's contributions and the withdrawal of accrued benefits?|
|A1 ||There is a "vesting scale" which applies to most ORSO schemes. It specifies the minimum period employees must work to be entitled to the employer's contributions. For example, if the minimum period of service stated in the vesting scale is three years and the employee has served less than three years, he or she will not be entitled to any part of the employer's contributions upon termination of employment. In contrast, all mandatory contributions made to an MPF scheme are fully and immediately vested as the scheme member's accrued benefits. |
|Q2 ||Would the investment performance of an ORSO scheme affect the accrued benefits I could withdraw upon resignation or retirement? |
|A2 ||Whether or not the investment performance affects a scheme member's accrued benefits depends on the type of ORSO scheme joined. If it is a "Defined Benefit Scheme", the accrued benefits will be calculated according to a defined formula which is not directly affected by the investment performance. On the other hand, if the member has joined a "Defined Contribution Scheme", the accrued benefits will be calculated based on the accumulated contributions and the investment returns. |