Provisional Legislative Council

PLC Paper No. CB(1)688
(These minutes have been
seen by the Administration)

Ref : CB1/BC/3/97

Bills Committee on
Provident Fund Schemes
Legislation (Amendment) Bill 1997

Minutes of the meeting held on Wednesday, 3 December 1997, at 10:45 am in Conference Room A of the Legislative Council Building

Members present :

Hon Ronald ARCULLI, JP (Chairman)
Dr Hon LAW Cheung-kwok (Deputy Chairman)
Hon WONG Siu-yee
Hon James TIEN Pei-chun, JP
Hon LEE Kai-ming
Hon Mrs Peggy LAM, JP
Hon CHAN Yuen-han
Hon Paul CHENG Ming-fun, JP
Dr Hon TANG Siu-tong, JP
Hon CHOY So-yuk

Members absent :

Hon HO Sai-chu, JP
Hon Henry WU
Hon MA Fung-kwok
Dr Hon Mrs TSO WONG Man-yin
Hon CHAN Kam-lam
Hon YEUNG Yiu-chung
Hon Ambrose LAU Hon-chuen, JP
Hon NGAN Kam-chuen

Public officers attending :

Mrs Pamela TAN
Mandatory Provident Fund Office

Ms Maisie CHENG
Assistant Director
Scheme Operations

Ms Hendena YU
Senior Manager (ORSO Interface)

Mr Geoffrey FOX
Senior Assistant Law Draftsman
Department of Justice

Clerk in attendance:

Miss Polly YEUNG
Chief Assistant Secretary (1)3

Staff in attendance :

Mr LEE Yu-sung
Senior Assistant Legal Adviser

Miss Anita HO
Assistant Legal Adviser 2

Mr Daniel HUI
Senior Assistant Secretary (1)5

I Meeting with the Administration

Members continued the scrutiny of proposed amendments to the Mandatory Provident Fund Schemes Ordinance (MPFSO).

Section 8

2. Members noted that as proposed sections 7A and 7C had included provisions on the obligations of employers, employees and self-employed persons to participate in and contribute to registered MPF Schemes, the existing section 8 would therefore be repealed.

Proposed section 11

3. Members noted the following clarifications provided by the Administration regarding the proposed amendments:

  1. subsections (1) to (4) were re-drafted to improve textual clarity;

  2. newly added subsections (5) and (6) allowed voluntary contributions in excess of the level of mandatory contribution and to provide an option for self-employed persons and employees whose income was below the minimum level of $4,000 per month to make contributions; and

  3. proposed subsections (7) to (9) specified that certain provisions of the MPFSO with respect to vesting, portability and withdrawal of accrued benefits would not be applicable to voluntary contributions.

Proposed section 12A

4. The Assistant Director/Scheme Operations (AD/SO) informed members that the proposed section 12A was to substitute part of the existing section 15(3) on the offsetting arrangements for severance payments and long service payments against the employer-funded portion of accrued benefits as currently provided under the Employment Ordinance. In response to a member, AD/SO confirmed that the Labour Advisory Board (LAB) had been informed of the proposed provisions under section 12A and that as a matter of policy, it would be up to the LAB to review the offsetting arrangements for severance/long service payments against retirement benefits.

Proposed section 14

5. Members noted that the proposed amendments sought to achieve the following objectives:

  1. providing employees with a statutory right in exercising options on portability of accrued benefits upon a change of employment or under other circumstances prescribed in the Regulation; and

  2. specifying the legal obligations of employers and trustees in effecting an employee’s choice on portability of accrued benefits during changes of employment.

Proposed sections 17B and 17C

6. Elaborating on the need for setting out in law the procedures for the MPFA and the court in handling claims for payments from the Compensation Fund (CF), AD/SO explained that the proposed amendments sought to delineate the respective responsibilities of the MPFA and the court with a view to shortening the time taken in handling such claims. The information required to be included in MPFA’s investigation report would be detailed in the relevant subsidiary legislation.

7. In reply to the Chairman, AD/SO advised that the MPFA’s investigation was essentially a fact-finding exercise to identify whether losses of accrued benefits had occurred and the circumstances leading to such losses. The MPFA would not offer an opinion as to whether misfeasance or illegal conduct on the part of service providers had been involved. She added that when scrutinising the relevant bill in 1995, LegCo members were of the view that the power to determine whether misfeasance or illegal conduct had been involved should be vested with the court.

8. Addressing members’ concern on the long lead time taken in conducting investigations and obtaining a court order before payment could be made from the CF, AD/SO advised that a MPF scheme under investigation or court proceeding could transfer or pay out MPF benefits upon completion of the valuation of loss on scheme assets which might only take a few weeks. The trustee would then be required to process portability and withdrawal cases in accordance with the valuation results. Moreover, to further protect scheme members, the proposed section 17C specified that interest must be added to the award of compensation from the CF.

Proposed section 18

9. Members noted that the proposed section 18 would empower the MPFA to impose penalty interest up to 15% of the outstanding amount on persons defaulting contributions.

Proposed section 20

10. Noting that the proposed section 20(6) would require an applicant seeking to become an approved trustee to enter into an undertaking with the MPFA to the effect that it would not refuse an eligible person’s application for scheme membership, a member requested the Senior Assistant Legal Adviser (SALA) to study the adequacy of the relevant provision and proposed sections 21(8) and 21A(8) which also dealt with the "no-rejection" requirement.

11. On proposed section 20(7)(iv), a member expressed concern about the monitoring of overseas companies setting up branches in Hong Kong to operate as corporate trustees. In response, the Senior Manager/ORSO Interface (SM/OI) advised that the applicant company had to meet the capital requirement, demonstrate sufficient presence in Hong Kong with an office and a resident chief executive officer, and be equipped with necessary facilities to enable it to carry out a trustee’s functions in Hong Kong. The detailed requirements would be set out in the subsidiary legislation. SM/OI estimated that the majority of overseas companies applying to become approved trustee would set up subsidiaries in Hong Kong subject to local laws. As requested by the Chairman, SALA would study the relevant provisions in the subsidiary legislation and alert members of special points in due course.

Proposed section 21

12. In connection with industry schemes, Miss CHAN Yuen-han expressed grave concern about vesting the executive power in relation to the operation of industry schemes with the MPFA, thus reducing the role of the Industry Schemes Committee (ISC) to an advisory one. She urged the Administration to review the relevant provisions to enable the ISC to play a prominent role in monitoring the effective implementation of industry schemes and in bringing about improvements. In response, the Administration provided the following clarifications:

  1. in view of the special nature of industry schemes, the MPFA would have to play a more active role in the setting up and operation of such schemes, such as prescribing scheme conditions in the tendering requirements, selection and registration of trustees and designating industries for which industry schemes should be set up; and

  2. in deciding the coverage and the number of industry schemes to be set up, the MPFA would have to consult the future ISC which would include representatives from the senior management of the MPFA and the trustees concerned. The ISC was entrusted with a number of statutory functions the main purpose of which was to monitor and ensure the effective implementation of industry schemes.

The Chairman suggested that the role of the ISC would be further discussed in the context of the proposed re-constitution of the MPFA. Members agreed.

Proposed section 22B

13. In response to a member’s enquiry on how the annual registration fee on approved trustees was determined, AD/SO confirmed that the annual registration fee would be charged as a percentage on the scheme assets.

14. Members noted that the Administration would move a Committee stage amendment (CSA) to delete "but any amount appropriated ..... is to be disregarded" which had been inadvertently included under proposed section 22B(3).

Proposed deletion of section 23

15. Miss CHAN Yuen-han raised strong objection to the proposed deletion of section 23 on Residual Provident Fund Scheme (RPFS) on the following grounds:-

  1. the RPFS had been included in the principal ordinance in 1995 in response to grave concerns raised by the labour sector over the difficulties of low-income earners in joining a regular MPF scheme in the market;

  2. on top of the "no-rejection" requirement, the RPFS should be retained as a last safety net for low-income earners who were genuinely unable to participate in a regular scheme; and

  3. issues related to the protection of low-income earners had been discussed at length at the former Subcommittee on Mandatory Provident Fund System and the Administration should not dispose of a protective measure so readily.

Miss CHAN said that the labour sector might have objected to the passage of the MPF Schemes Bill in 1995 if there were no provisions on a RPFS.

16. In response, the Administration explained that the proposed deletion of section 23 was based on the following considerations:-

  1. the Administration had believed from the outset that the majority of eligible persons would be able to join MPF schemes available in the market. Nevertheless, to cater for a small number of persons who were genuinely unable to join a regular scheme, it was agreed that a RPFS would be established;

  2. it should be borne in mind that under the current provisions, the RPFS was only a last resort. A person could not join the RPFS freely and could only do so after placement service by the MPFA to enrol him in a regular scheme had failed;

  3. as a result of discussions with members and having consulted the retirement scheme industry, it was now proposed to impose a "no-rejection" requirement on trustees of all master trust schemes and industry schemes. In anticipation that no eligible persons would be rejected under this statutory requirement, there was no need to maintain a RPFS;

  4. the future MPFA would closely monitor the implementation of the "no-rejection" provisions. All MPF scheme rules would be examined by the MPFA with a view to ensuring that there was no discrimination against low-income earners. Trustees in breach of the "no-rejection" requirement would risk being sanctioned; and

  5. the co-existence of section 23 and the "no-rejection" requirement in the Ordinance would mean that the MPFA would have to put in resources to provide a placement service which was virtually unneeded. It was also doubtful whether any approved trustee would be interested in bidding to be the operator of a RPFS.

17. Miss CHAN Yuen-han was not convinced of the Administration’s explanation and indicated her intention to move CSAs to provide for a RPFS should the Administration finally decide to abolish it. In this connection, the Chairman urged the Administration to re-consider issues related to the RPFS and the "no-rejection" requirement, taking into account comments from members and various sectors of the community.

II Any other business

18. The Chairman informed members that Mr WONG Siu-yee had applied to join the Bills Committee after the deadline for signifying membership for the reason that he was ill at the time when membership was called for. The Chairman said that he had accepted Mr WONG’s late membership on grounds of indisposition in accordance with the relevant House Rule.

19. The Chairman suggested and members agreed that an advertisement would be placed in a Chinese-language newspaper and an English-language newspaper to invite submissions from the public on the Bill and the draft subsidiary legislation. Members also agreed to meet with the deputations at the meeting to be held on 16 December 1997. (Post-meeting note: The advertisement as endorsed by members vide PLC Paper CB(1)605 was placed in the South China Morning Post and the Oriental Daily News on 5 December 1997.)

20. In reply to the Chairman, D/MPFO said that the Administration would respond to major issues identified by members as requiring further consideration after the current discussion on proposed amendments to the MPFSO. Members agreed.

21. The Chairman reminded members that the next meeting of the Bills Committee would be held on 4 December 1997 at 2:30 pm.

22. The meeting ended at 4:30 pm.

Provisional Legislative Council Secretariat
17 December 1997