LegCo Subcommittee on MPF System
Information Note
Report on
Outstanding Scheme Operational Issues


This paper presents a summary of the comments raised by Members on scheme operational issues in previous Subcommittee meetings up to 12 February 1997, together with the response and follow-up actions to be taken by the Administration.

Specific Issues Raised

General Principles (4.11.1996)

LegCo’s Comments

2. Members requested the following :

  1. a list of the items to be included in the Annual Benefit Statements of MPF scheme members; and
  2. information on the experience of other countries having similar retirement protection systems, particularly the problems of the employee-based systems.

Administration’s Response and Action

3. Regarding (a), Annex A sets out the items to be incorporated in the Annual Benefit Statement.

4. Regarding (b), papers setting out the pension systems in Australia, Chile and Singapore were submitted to the Subcommittee on 11 December 1996.

Portability (19.12.1996)

LegCo’s Comments

5. LegCo Members are concerned that if there is no deadline imposed on employees, they might forget to exercise their options to transfer or consolidate their scattered MPF accounts. This will create a large number of fragmented dormant accounts and will not be in the interest of scheme members. They suggest that employers should remind the new employees to transfer or consolidate their accounts.

Administration’s Response and Action

6. In achieving the above purpose, we do not consider it appropriate to impose a statutory requirement on the employers to remind their new employees to transfer or consolidate their accounts :

  1. the employer bears no direct relationship with those accounts of the new employee previously accrued; and
  2. if we require the reminder be sent in writing, such a statutory requirement would be an additional administrative burden to the employer; however, it would be difficult to enforce if the employer is only required to orally inform his new employees.

7. We consider that it is more appropriate and operationally more effective to require the trustee to remind the employees about the options to transfer or consolidate their scattered MPF accounts because:

  1. the trustee is directly managing the dormant account and it is appropriate to impose a duty on them to remind their scheme members;
  2. it is administratively more reliable and systematic for the trustees to remind the employees of their options; and
  3. the trustees will be involved in processing transfer of benefits and issuing information to the scheme members in any case.

8. We propose that if an MPF account has become dormant for 6 months or more (i.e. no further MPF contributions has been made to that account), the trustee should remind the scheme member, in the context of the Annual Benefit Statement, of his right to exercise his options to transfer or consolidate his MPF account.

Withdrawal (19.12.1996)

LegCo’s Comments

9. Some LegCo Members consider that allowing withdrawal of MPF accrued benefits due to permanent departure only once is too strict for people who emigrate or move in and out of HK more than once.

Administration’s Response and Action

10. We have considered the feasibility to allow more flexibility for withdrawal on grounds of permanent departure. However, we suggest not to relax the withdrawal requirement at this stage. We believe that allowing scheme members to withdraw their benefits on grounds of permanent departure only once is a balanced, simple and easy to understand way to uphold the principle of preservation. The reasons are:

  1. Characteristics of workforce : We do understand that there are a group of emigrants who may move in and out of Hong Kong more than once. However, the MPF System only covers income level not exceeding $20,000. We believe that most of the small employees earning below $20,000 do not belong to this group. As they are the prime targets for protection under the MPF System, we should not provide flexibility for benefit withdrawal unnecessarily which may lead to abuse.
  2. Open floodgate : If we allow certain scheme members to withdraw more than once, it would easily be abused, for example, it is difficult to prove if a scheme member declares that he is leaving Hong Kong to reside in China.
  3. Simple system : Our existing proposal is a simple one which relies on the restriction on the number of times a scheme member can withdraw his accrued benefits rather than on the provision of proofs. If we allow withdrawal more than once on the basis of some special circumstances, it is administratively complex and costly for both the trustees and MPFA.

11. Instead of allowing withdrawal for more than once, we suggest to impose a requirement on the trustee to facilitate these scheme members to exercise their option to withdraw their accrued benefits upon permanent departure as follows :

  1. when a scheme member applies for withdrawal due to permanent departure, the trustee shall remind the scheme member that he would not be able to withdraw again on the same ground;
  2. as a result, the scheme member should consider whether he would like to withdraw at that juncture based on his personal circumstances :

      – if the scheme member considers that there is a possibility that he may return to Hong Kong, he may choose to withdraw his accrued benefits in future when he is sure that he will not come back and retire in Hong Kong;

      – if the amount of accrued benefits in the account is not large, the scheme member may consider that it is not worthwhile to exercise his option at this junction.

12. We will continue to monitor the situation of withdrawal due to permanent departure after the implementation of the MPF System and assess whether there is a need to give more flexibility or tighten the proposed requirements.

Self-employed Persons (9.1.1997)

LegCo’s Comments

13. LegCo Members consider that as many of the self-employed persons only have a low and unsteady income, self-employed persons should not be required to pay current year’s contributions in advance and based on previous year’s income. They suggest that contributions of self-employed persons for a period should be payable only after the period and with reference to the actual income of that period.

Administration’s Response and Action

14. We accept LegCo’s suggestion that contributions should be paid in arrears. The requirement will be incorporated in the subsidiary legislation.

15. Regarding the proposal of calculating the relevant income on the basis of actual income, we consider it more appropriate to adopt the original proposal to use the Notice of Assessment (NoA). We need to provide a simple system to encourage the self-employed persons to join MPF schemes. If we use the assessable profits in NoA as the basis for calculating their relevant income, the self-employed persons will not be required to calculate their profit and loss separately for tax purpose and MPF purpose. This avoids extra work and possible confusions and will facilitate compliance and enforcement. It also saves the effort of the trustees and MPFA to verify the calculations.

Contributions (12.2.1997)

LegCo’s Comments

16. With regard to the making of mandatory contributions, members suggest that the Administration should consult unions regarding special employment arrangement and payment methods in specific trades/industries so as to ensure that employers/employees in such trades/industries can comply with the MPF requirements.

Administration’s Response and Action

17. We have started consulting unions accordingly. So far, the main concerns of the unions are :

  1. the difficulties in confirming the employer-employee relationship, in particular in industries with high turnover rate and large number of casual labourers;
  2. calculation of the relevant income in specific industries, in particular whether certain specific items will be included as their relevant income; and
  3. education for employers on their duties to enrol their employees into MPF and for employees on their rights under the MPF System.

18. We have also arranged a number of meetings with other unions in the coming weeks. It is our target to consult as many major unions as possible to enable us to develop detailed guidelines for the definition of relevant income and for handling special employment relationships.

Default Contributions (12.2.1997)

LegCo’s Comments

19. LegCo Members have expressed concern that scheme members may have to bear the costs of prosecuting defaulting employers. They suggest that scheme members should not be held responsible for such costs.

Administration’s Response and Action

20. We are still considering the policy for allocating costs and will report back to Members at a later meeting.

Mandatory Provident Fund Office
27 March 1997

Annex A

Items to be Prescribed in Annual Benefit Statement

A trustee of an MPF scheme, either employer-sponsored schemes or master trust scheme, will be required to send an Annual Benefit Statement to each of the scheme member within a period prescribed in the subsidiary legislation. The trustee need to comply with this requirement regardless the account of the scheme member is still receiving contributions or not.

2. It will be prescribed in the subsidiary legislation that the Annual Benefit Statement shall include the following information :

  1. General information :
    1. name of the registered scheme;
    2. an indication as to the months for which contributions have not been received as at the year end specifying for how many or which of those months the contributions are in default as at the year end; and
    3. contact details for addressing enquiries in respect of the Statement.

  2. Information in respect of each scheme member :
    1. name and/or HK Identity Card number;
    2. accrued benefit balance at the beginning of year;
    3. employee contributions received during the year;
    4. employer contributions received during the year;
    5. transfers into the scheme from other schemes during the year; and
    6. accrued benefit balance at the end of the year.

3. The information in items b(ii) to (vi) shall be analysed between mandatory and non-mandatory contributions. It is up to the trustee to provide in the Annual Benefit Statement any additional information other than items (a) and (b) above as he thinks appropriate. It will also be prescribed in the subsidiary legislation that the Annual Benefit Statement shall be made available in both the English and Chinese languages.

Mandatory Provident Fund Office
Financial Services Branch
26 March 1997

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