Provisional Legislative Council

PLC Paper No. CB(1)1171
(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 Tuesday, 20 January 1998, at 2:30 pm 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 CHAN Kam-lam
Hon Ambrose LAU Hon-chuen, JP
Hon NGAN Kam-chuen
Hon CHOY So-yuk

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 YEUNG Yiu-chung
Hon Paul CHENG Ming-fun, JP
Dr Hon TANG Siu-tong, JP

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 Meeting with the Administration

Proposed Reconstitution of the Mandatory Provident Fund Schemes Authority (MPFA) under the MPF Schemes Ordinance

1 Members continued discussion on the proposed composition of the MPFA, the MPF Schemes Advisory Board and the Industry Schemes Committee.

Proposed composition of the MPFA

2 The Chairman re-stated his proposal made at the last Bills Committee meeting that the management board of the MPFA should consist of two representatives from each of the five interest groups, namely, employers, employees, the retirement scheme industry, the Government and other persons who might represent the academics and/or related professionals such as auditors and actuaries. The Executive Director of the MPFA should also be a member of the management board.

3 Miss CHAN Yuen-han also reiterated her proposal that the management board of the MPFA should have three representatives each from employers and employees, two representatives each from related professionals (such as auditors/actuaries), Government officials and other persons. She was of the view that representatives from the retirement scheme industry should not be appointed as members of the management board to avoid conflict of interest.

4 In this connection, Miss CHOY So-yuk said that initially, she was inclined to support the inclusion of industry representatives on the management board.

5 Mr WONG Siu-yee said that since the management board of the MPFA would perform executive functions and make decisions which would affect the interest of trustees and other service providers, he could not accept the proposal of a management board with representatives of the retirement scheme industry. Having regard to the mandatory nature of the MPF system, he expressed support for the Administration’s current proposal under the Bill i.e. the reconstitution of the MPFA as a corporation sole with the Executive Director responsible for the administration of the MPF system, underpinned by the MPF Schemes Advisory Board and the Industry Schemes Committee.

6 The Chairman further asked the Administration to consider the desirability of appointing of senior executives of the MPFA to the management board, as well as the mechanism for appointing the chairperson and deputy chairperson of the board.

7 Members urged the Administration to take members’ views into account in drawing up its revised proposal on the reconstitution of the MPFA.

MPF Schemes Advisory Board

8 In response to members’ suggestion, the Director/MPF Office (D/MPFO) agreed to consider amendments to proposed section 6N of the MPF Schemes Ordinance (MPFSO) to specify that members of the MPF Schemes Advisory Board should include representatives from employers, employees, related professionals and the retirement scheme industry.

Industry Schemes Committee (ISC)

9 In response to members’ concern, the Administration would consider the following amendments to proposed section 6Q of the MPFSO in relation to membership of the ISC:

  1. to stipulate that membership of the ISC must include representatives of employers and employees; and

  2. to remove the upper limit on membership of the ISC so that additional representatives from new industries to be covered by industry schemes could be appointed as members of the ISC.

10 In response to some members’ concern about the role of the ISC, the Assistant Director/Scheme Operations (AD/SO) explained that proposed section 6S of the MPFSO stated clearly the functions of the ISC which would include, inter alia, monitoring the operation of industry schemes and advising the MPFA on the number of such schemes to be established and their coverage. The Administration considered that the ISC would play an important role in the future implementation of industry schemes.

Committee stage amendments (CSAs) to be moved by the Administration

(PLC Paper No. CB(1)829(03)

11 The Administration briefed members on the proposed CSAs as set out in the information paper. The proposed CSAs sought to address members’ concerns raised at previous meetings of the Bills Committee and to improve clarity, where necessary. Members deliberated on the CSAs to the following proposed sections of the MPFSO.

Proposed section 18

12 AD/SO said that the Department of Justice (DoJ) had advised that members’ proposal at an earlier meeting of empowering the MPFA to fix and apply the rate of penalty interest (subsequently amended to "contribution surcharge") was not in line with the existing legal policy since a regulatory authority could not be empowered to collect a penalty fine and, at the same time, be vested with discretionary powers to fix its amount. In view of DoJ’s advice, the proposed CSA to section 18 would cap the penalty interest at 15% per annum or at the savings deposits interest rate plus 5%.

13 Members considered that the proposed maximum rate for penalty interest too low and therefore lacked deterrent effect. At members’ request, the Administration agreed to amend the maximum rate to 20% per annum.

Proposed section 23

14 Members noted that the Administration had not proposed any CSA to enable the MPFA to set up a Residual Provident Fund Scheme (RPFS). At members’ request, the Senior Assistant Legal Adviser (SALA) would prepare the necessary CSA for the Bills Committee to provide for the option of setting up a RPFS.

Proposed Schedule 8 to the MPFSO

15 In reply to the Chairman, the Senior Assistant Law Draftsman advised that the four categories of exclusions in proposed sections 14 to 17 of proposed Schedule 8 sought to remove any possible ambiguity on the conditions under which a person would be considered as an associate of an approved trustee. At the request of the Chairman, the Administration would re-examine the need to retain the four categories of exclusions in the proposed Schedule.

Revised proposals on the Capital Preservation Product under proposed section 31 of the draft MPF Schemes (General) Regulation

(PLC Paper No. CB(1)829(04) & CB(1)829(05))

16 The Assistant Director/Regulatory Standards (AD/RS) advised that after consultation with the retirement schemes industry, three revised proposals on the capital preservation product (CPP) had been drawn up as set out in the information paper.

17 Miss CHAN Yuen-han said that among the three revised proposals, only proposal 3, which would allow the carrying forward of administration fees to future months within the financial year, was acceptable. Under the proposal, when future investment income was sufficiently high, the service provider might retain part of the excess to recoup past losses in administration fees. She stated that proposal 2, which sought to relax investment restrictions on CPP funds, was unacceptable because this would lead to an increase in investment risks. She also considered proposal 1 unacceptable because service providers would be able to charge administration fees despite unsatisfactory investment return.

18 Mr WONG Siu-yee suggested that since the retirement scheme industry had expressed reservation in providing the CPP under the proposed conditions, the Administration should consider taking up the responsibility of operating the CPP fund. In reply, AD/RS and D/MPFO confirmed the Administration’s stance against a Government-operated CPP fund as this would be incompatible with the overriding principle of a privately-managed MPF system. They further pointed out that the CPP was a requisite option under each MPF scheme and could not be provided on its own.

19 The Chairman queried the rationale that an approved trustee should be penalised through denial of administration fee because of unsatisfactory investment returns of CPP funds over which it had no direct control.

20 Referring to a letter dated 15 January 1998 from the Life Insurance Council (LIC), the Chairman asked the Administration to consider LIC’s proposal for a 50% reduction in fees payable to the MPFA on CPP funds. In reply, AD/RS advised that such fees would be charged on a cost recovery basis and would not be waived. If there was a 50% fee reduction on CPP funds as proposed, the shortfall would have to be made up by charges on non-CPP funds. He added that such cross-subsidy might not be equitable to non-CPP funds under the same Scheme.

21 In reply to the Chairman, AD/RS confirmed that the MPFA charges to be paid by the approved trustee would be calculated as a fixed percentage of scheme assets. He added that to do otherwise, such as by imposing a level charge irrespective of the size of scheme assets, would disadvantage small schemes. Moreover, the fixed percentage charging method was in line with existing practice of the insurance regulators in the United States in charging licence fees of insurance companies based on their amount of premium received.

22 Members urged the Administration to consult the industry again on members’ views and revert to the Committee as soon as possible.

II Any other business

23 The Chairman reminded members that the next meeting would be held on 22 January 1998 at 8:30 am.

24 The meeting ended at 4:50 pm.

Provisional Legislative Council Secretariat
23 March 1998