Provisional Legislative Council

PLC Paper No. CB(1)1261
(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 Thursday, 12 February 1998, at 10:45 am in the Chamber of the Legislative Council Building

Members present :

Hon Ronald ARCULLI, JP (Chairman)
Dr Hon LAW Cheung-kwok (Deputy Chairman)
Hon WONG Siu-yee
Hon LEE Kai-ming
Hon CHAN Yuen-han
Hon YEUNG Yiu-chung
Hon NGAN Kam-chuen

Members absent :

Hon James TIEN Pei-chun, JP
Hon HO Sai-chu, JP
Hon Mrs Peggy LAM, JP
Hon Henry WU
Hon MA Fung-kwok
Dr Hon Mrs TSO WONG Man-yin
Hon CHAN Kam-lam
Hon Ambrose LAU Hon-chuen, JP
Hon Paul CHENG Ming-fun, JP
Dr Hon TANG Siu-tong, JP
Hon CHOY So-yuk

Public officers attending :

Mrs Pamela TAN
Mandatory Provident Fund Office

Ms Maisie CHENG
Assistant Director
Scheme Operations

Mr Raymond TAM
Assistant Director
Regulatory Standards

Mr Duncan BERRY
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

Mr Daniel HUI
Senior Assistant Secretary (1)5

I. Confirmation of minutes of meetings and matters arising

(PLC Papers No. CB(1)865, 824, 825, 826, 827, 877, 878, 900 and 901)

1The minutes of the meetings held on 15 and 16 December 1997 and 8 January 1998 were confirmed.

2 As regards a member’s suggestion made at an earlier meeting about moving Committee stage amendments (CSAs) to make the Residual Provident Fund Scheme (RPFS) open to all scheme members, the Senior Assistant Legal Adviser (SALA) advised that in his opinion, the proposal would expand the coverage of the RPFS and incur additional resources requirement on the Administration for implementing the expanded RPFS. As such, the related CSAs would have a charging effect. SALA added that the final decision on whether a CSA would have a charging effect would rest with the President of the Provisional Legislative Council.

II.Meeting with the Administration

Reconstitution of the MPF Schemes Authority (MPFA)

(PLC Paper No. CB(1)933(01))

3 The Director/MPF Office (D/MPFO) said that having considered members’ concerns for enhancing the accountability and transparency of the MPFA, the Administration would propose to reconstitute the MPFA from a corporation sole to a body corporate with a management board to assume overall management functions. She highlighted that the proposed management board would consist of not less than 10 members including the chairperson. Half of the members would be full-time members and the other half would be part-time members. Amongst the part-time members, there would not be more than two representatives for employers and employees respectively.

4 Some members said that they would require more time to study the Administration’s proposals before giving substantive comments. The Chairman considered it inappropriate to refer to members of the proposed management board as "full-time members" and "part-time members" and suggested that expressions such as "executive director" and "non-executive director" should be used.

5 In response, D/MPFO advised that the Administration had used the expressions "full-time member" and "part-time member" instead of "executive director" and "non-executive director" in order to avoid possible confusion between the terms "executive director" and "Executive Director", the latter being used in the MPF Schemes Ordinance to refer to the chief executive officer of the MPFA. Nevertheless, the Administration would consider whether the drafting could be improved in the light of the Chairman’s concern. Admin

6 Miss CHAN Yuen-han observed that in the case of the Airport Authority (AA) and the Estate Agents Authority (EAA), persons were appointed directly to the AA and the EAA as members, instead of being appointed as members of a management board of the Authority concerned. She questioned the need for a management board per se and suggested that the proposed organisation of the MPFA should be similar to those of the AA and the EAA to streamline the management structure. In this connection, the Assistant Director/Scheme Operations (AD/SO) and the Senior Assistant Law Draftsman (SALD) explained that the difference between the proposed management structure of the MPFA and those of the AA and EAA was mainly technical and a matter of names. The existence of a proposed management board for the MPFA would not affect its body corporate structure as the management board would be responsible for managing and controlling important affairs of the Authority.

7 In reply to members, SALA advised that whether matters were decided by a body of persons called the MPFA or a management board in the MPFA was mainly a difference in names. Nevertheless, he suggested that for the sake of consistency, it might be advisable to align the proposed structure of the MPFA with those of the other statutory bodies. At members’ request, the Administration would consider revising the proposed arrangements to be more in line with the management structure of other statutory authorities. Admin

8 The Chairman expressed reservation on the Administration’s proposal that the Executive Director of the MPFA would be the chairperson of the proposed management board. Miss CHAN Yuen-han shared similar objection.

9 Mr WONG Siu-yee reiterated his view that representatives of the retirement scheme industry should not be appointed to the MPFA in order to avoid conflict of interest. In this connection, D/MPFO advised that under the Administration’s proposal, it would be up to the Chief Executive of the Hong Kong Special Administrative Region to appoint members to the MPFA management board, having due regard to their suitability, knowledge and experience in pension matters.

10 While agreeing that membership of the proposed management board should not be too large to avoid inefficiency, the Deputy Chairman opined that the membership should be sufficiently embracive of input from relevant sectors of the community. In reply, D/MPFO said that in appointing members of the management board, the Chief Executive would ensure that there would be broad representation from relevant sectors. Moreover, the MPF Schemes Advisory Board and the Industry Schemes Committee were additional sources of advice to the MPFA.

11 Member agreed to continue discussion on the proposed reconstitution of the MPFA at the next meeting.

Residual Provident Fund Scheme (RPFS)

(PLC Paper No. CB(1)937(01))

12 D/MPFO informed members that in response to members’ concerns raised at past meetings, the Administration had proposed to move a CSA to the Bill to retain the option for setting up a RPFS. The new provision would have the effect of enabling the MPFA to set up the RPFS if the provisions concerning the "no-rejection" requirement were not operating effectively.

13 Miss CHAN Yuen-han reiterated her stance in support for free entry and free exit to the RPFS which should be operated by the MPFA. In explaining the Administration’s position, D/MPFO advised that under the existing legislation, an employee would be allowed to join the RPFS only if MPFA’s efforts in finding a privately managed MPF scheme for the employee had failed. If the RPFS was to be operated by the MPFA and free entry and free exit to the scheme was allowed, many employees might choose the RPFS instead of privately-managed MPF schemes. In this way, the RPFS would resemble a central provident fund and compete with other privately-managed MPF schemes. This would be against the overriding principle that the MPF system should be a privately-managed retirement system.

The Recent Market Turmoils and Retirement Fund Schemes - The Impact and Related Issues

(PLC Paper No. CB(1)937(02) and (03))

14 Referring to a chart (PLC Paper No. CB(1)937(03)) showing the long-term investment returns of different investment portfolios, D/MPFO pointed out that despite turmoils in the financial markets which occurred from time to time, the investment return of a portfolio comprising Hong Kong and world equities proved to be the highest amongst the different investment portfolios. She added that given the very long-term investment horizon and the conservative investment strategy adopted by retirement funds, the impact of occasional market turmoils on investment return of retirement funds should be very limited.

15 Elaborating on the information paper prepared by the Administration, AD/RS made the following points:

  1. while the Hong Kong stock market suffered a 20% fall in 1997, the median investment return of retirement funds in Hong Kong recorded a fall of only 6.4% and 7.3% as revealed by surveys conducted by two consultant companies. The better performance of the retirement funds was due to a combined strategy of market diversification and balanced portfolio;

  2. the long term average rates of investment return on Hong Kong retirement funds had exceeded the rate of inflation during the same period;

  3. the liquidation of the Peregrine group had not affected the assets of the retirement schemes managed by it as it had only performed the role of an investment manager. All assets of the retirement funds were held as trust property by the scheme trustee concerned;

  4. the liquidation of C. A. Pacific, which was a stock broker, had affected its "margin account" clients and "cash" clients who had left their stock holdings under the custody of C. A. Pacific. However, as assets of MPF schemes had to be held by the scheme custodian which must not be a stock broker, and MPF schemes would not be allowed to invest on a "margin account", future MPF schemes would not be affected by the collapse of a stock broker; and

  5. in the longer term, MPF funds could assist Hong Kong to develop its debt market and act as a force to stabilize the local stock market.

16 On point (b) above, a member enquired whether the long term average rate of investment return of Hong Kong retirement funds could still beat inflation after discounting the relevant administration costs. In reply, AD/RS confirmed that the investment returns up to 1996 as shown in Table 6 of the information paper were net of investment management charges, but not trustee fees.

17 In reply to a member’s suggestion of greater government involvement in the MPF system, AD/RS said that a government-appointed committee of Singapore had recently recommended that the management of part of Singapore’s Central Provident Fund be given to investment managers in the private sector. This was indicative of a trend to shift the management of provident funds from the public sector to the private sector to enhance efficiency and investment return.

III. Any other business

18 In order to allow more time for the Committee to deliberate on the Administration’s proposals on the reconstitution of the MPFA, members agreed to recommend to the House Committee that approval from the President be sought to extend the deadline for giving notice to move CSAs to the Bill from 16 February 1998 to 18 February 1998.

19 Members agreed that the next meeting would be held on 13 February 1998.

20 The meeting ended at 12:30 pm.

Provisional Legislative Council Secretariat
15 April 1998