The novel coronavirus outbreak resulted in market turbulence across the globe in the first quarter of 2020. Performances of the Mandatory Provident Funds (MPF) were dragged down as a result, with each account holder losing an estimated HKD26,000, according to an MPF consultancy. In fact, it is very hard for any investments to perform well under the current market conditions. Employing the Tax Deductible Voluntary Contributions (TVC) arrangement, however, could help reduce the overall tax expenses, and potentially offset some investment losses.
Both MPF members – be it with contribution accounts or personal accounts – and those joining the MPF-exempted ORSO schemes are eligible for TVC arrangements. The maximum taxable income deduction cap per year for such contributions is HKD60,000. Given the highest tax rate at present is 17%, a TVC account holder can save up to HKD10,200 in tax returns each year. Reduced expenditure means more disposable income. And since the sum that gets saved does not come with any investment risks, TVC savings can therefore be seen as a reliable form of “passive income.”
Regular assessment of MPFs helps steadily increase returns
TVC arrangements help bring more income through tax deductions. However, if one wishes to accumulate more wealth for retirement, active management of both TVC and MPF accounts is suggested. A lot of people have the misconception that MPF is simply a mandatory policy. As a result, they pay little attention to it and park their contributions in a certain asset class without caring whether they yield any returns or not. Given the vagaries of the market, we should review the performance of our MPFs regularly and rebalance our portfolios based on our risk tolerance and changes in the market. That is essential for avoiding risks and maintaining stable returns.
MPF is a long-term investment. Yet, it is also important to regularly assess your other investments to maintain financial fitness; that is “FinFit”. Desirable returns can only be achieved when all assets are complementary. That explains why managing both your MPF and TVC accounts through HSBC helps. Under one single roof your financial conditions and the performance of all your assets including cash, savings, equities, funds, and MPFs can be clearly reviewed. With ease you can rebalance the allocations between MPF and TVC based on your risk tolerance and investment preference so as to create a more balanced solution.