Pension Tension

Reception has been tepid by employers for a voluntary provident fund scheme - the Administration has been urged to try everything to engage bosses and transform the scheme into a mandatory one

Doubts have been raised about the effectiveness of a proposed public voluntary pension scheme after the government unveiled details two years ago, given its non-mandatory nature and the lack of participatory appeal by employers.  

Following the implementation of the scheme – better known as the  Non-mandatory Central Provident Fund since this year – the reception by employers has so far been what naysayers expected: lacklustre. In a bid to better protect the lives of residents after retirement, critics urge large corporations to join the scheme while a blueprint and measures for the scheme to become mandatory have to be laid down as soon as possible. 

According to figures provided by the Social Security Fund, which oversees the voluntary scheme, it had received 12,086 individual plan applications and 46 joint plan applications as of June 8. Most of the joint applications, contributed to by both employers and employees, came from social services institutions.  

The number of joint applications is rather low, given some 62,237 companies were registered in the city as at the end of the first quarter. The 46 joint applications translate to only 0.00074 per cent of the total number of firms here.  

  • 46 

Number of joint applications for central provident fund as of early January 

Stanley Au Chong Kit, president of the Macau Small and Medium Enterprises Association, recently acknowledged on a public occasion the importance of a central provident fund. “But as the scheme is voluntary at the moment the SMEs don’t have any initiative to join the scheme due to the extra cost imposed upon their operations,” he noted. 

Mr. Au added that the SMEs, which make up more than 90 per cent of companies here, already face numerous operational challenges – namely, surging property prices and shortage of manpower. 

Financial subsidies 

The idea of a central provident fund – similar to Hong Kong’s Mandatory Provident Fund (MPF) that was inaugurated in 2000 – first appeared on the Macau Government agenda in 2008, as support to ensure the living standards of residents upon retirement in addition to an annual subsidy for senior citizens, the Social Security Fund and personal savings.  

Following a decade of delays, the voluntary scheme, coming into force on January 1, mandates that employers and employees have to contribute at least 5 per cent of the basic salary of employees every month to the fund in the joint plan. For instance, if a company has three employees paid a monthly salary level equivalent to the present residents’ median monthly earning of MOP19,000 (US$2,375) it has to pay at least MOP2,850 for the contribution every month. 

The scheme also accepts individual plans, in which residents have to contribute between MOP500 and MOP3,100 a month on their own. Residents can retrieve the money from the fund, which is managed by designated pension and insurance companies for investment and savings at the age of 65 or above, according to the rules of the provident fund. 

However, the scheme has been subjected to criticism: employees think the government should have made it mandatory, while bosses think the incentives -namely tax breaks – offered by the government are not attractive and lament that they cannot use the contributions or the fund for laid-off compensation.  

In nearby Hong Kong, there is an offset mechanism in its MPF, in which bosses can dip into the contributions of the fund for severance and long-service payments although the Administration there proposed earlier this year a financial commitment of HK$17.2 billion (US$2.19 billion) for 12 years to subsidise employers cancelling the much-criticised offset mechanism.  

“More and more large corporations, such as gaming operators, will gradually join the voluntary scheme given the government’s push,” says a business representative, who declined to be identified. “Also, most of them have a private pension scheme for their employees so it’s not a novelty and new financial pressure for them.” 

“The real battle lies with the SMEs: without any financial subsidies, there’s no way now for the SMEs to join and support the scheme,” the representative said. “The authorities could look into the example of Hong Kong if they are committed to making the scheme mandatory without an offset mechanism.” 

Leading example 

According to government plans, it hopes to attract over 240 large employers – who have already provided their own pension schemes for workers and employ in total about 35 per cent of the labour force here – to join the provident fund within the first two years of implementation. The authorities plan to review the scheme three years after enforcement and study how a mandatory programme could be established. 

‘Employers like some social services, financial institutions and large corporations… have been in contact and discussions with fund management entities for joining the central provident fund,’ the Social Security Fund said in a statement. ‘It is expected that the number of applications will be further enhanced in the future.’ 

“Mostly employers are positive towards [the set-up of] a central provident fund,” claims the Social Security Fund. 

The public body also noted that it has met with a number of employers in various sectors to encourage them to join the voluntary scheme, with a large-scale event to be held in July.  

‘Some employers are concerned that the contributions cannot be used for laid-off compensation… while some expect there will be more administrative work for having both central provident fund and private pension scheme,’ it claimed. ‘[But] mostly employers are positive towards [the set-up of] the central provident fund.’ 

Indeed, Tai Fung Bank Ltd., which has a private pension scheme for its workers, recently committed to joining the central provident fund, allowing its employees to opt for either programme. The lender – founded by the father of Edmund Ho Hau Wah, the city’s first Chief Executive – noted it hopes to serve as an example to other firms in the territory. 

The city’s six gaming operators have also been under mounting pressure from workers unions to participate in the provident fund scheme as some groups claim casinos could use the contributions of the private pension funds for laid-off compensation.  

Overcoming challenges 

Legislator Lei Chan U from the city’s largest workers group – the Macau Federation of Trade Unions – urges the government to make good use of these three years to produce a blueprint and measures for a mandatory provident fund.  

“As the scheme is voluntary now, the government should also do more work to promote the benefits of the provident fund and encourage employees who don’t have a private pension scheme to join the individual plan first if their employers are not willing to join the provident fund,” he noted. 

With regard to the unwillingness of companies to join the scheme, the legislator advises it is the right way for businesses to grow, saying: “It could help companies to retain manpower and further enhance their competitiveness.” 

“There are always challenges concerning any changes to the status quo,” Chan Kin Sun, assistant professor of Public Administration at the University of Macau, says of the provident fund. “The important thing is to ensure the scheme is gradually put in place.” 

“The social security fund and subsidy for senior citizens can barely maintain the lives of residents after retirement now,” says Chan Kin Sun, assistant professor of Public Administration at the University of Macau. 

The considerable portion of individual applications – over 12,000 – shows that residents have a high acceptance of a central provident fund, deduces Prof. Chan, adding he understood the hesitation of SMEs in joining the scheme due to the additional costs.  

“What I pay attention to now is not really about the reception of the scheme but how the authorities utilise this experience to transform the voluntary scheme into a mandatory one,” he said.  

“The social security fund and subsidy for senior citizens can barely maintain the livelihoods of residents after retirement now,” he continued.  

An elderly person here now is entitled to the elderly subsidy of MOP9,000 a year and a monthly pension from the social security contributions of MOP3,450, amounting to MOP4,200 a month in all. 

“A mandatory central provident fund scheme could help improve the lives [of the local elderly],” the scholar added. 

How much can individuals get on retirement from Central Provident Fund? 

Monthly Salary (MOP)*  19,000  19,000  19,000  19,000 
Contribution percentage for employers and employees each  5%  6%  7%  8% 
Period of contribution**  40  40  40  40 
Annual investment yield of contributions   3%  3%  3%  3% 
Pension at retirement (MOP)  1,725,346.6  2,070,415.9  2,415,485.2  2,760,554.5 


* Assuming monthly salary fixed throughout 

** Assuming individual starts working aged 25 and retires at 65  

Ten-year line 

Although the voluntary central provident fund does not include an offset mechanism in which employers are permitted to use their contributions for the laid-off compensation of employees the scheme mandates employees only be entitled to all the contributions of employers by working for at least ten years prior to resigning or being laid off.  

Number of years  Proportion of contributions entitled 
Less than 3  0% 
3-4  30% 
4-5  40% 
5-6  50% 
6-7  60% 
7-8  70% 
8-9  80% 
9-10  90% 
More than 10  100% 


Big Seven 

A total of seven pension and insurance management companies have been approved by the Social Security Fund to manage the voluntary central provident fund, providing a total of 39 fund products for residents as of April. 

According to the public body, the total assets of the 39 fund products range from over MOP125,000 (US$15,625) to MOP4.57 billion. Of the 39 funds, 27 funds recorded positive yields as of April, 10 reported a loss and two did not provide information, with performance ranging from a loss of 2.4 per cent to a gain of 3.38 per cent.  

Concerning the private pension fund, figures from the Monetary Authority of Macau show nine pension and insurance companies provide 54 products in the market. Private pension fund products are available from all of the seven companies providing central provident fund products, while the local subsidiaries of HSBC Life (International) Ltd. and Manulife (International) Ltd. only offer private fund products.