PLC Sub-Committee on Subsidiary Legislation of the MPF System

Information Note

Industry Schemes


Members are invited to comment on the proposal to set up Industry Schemes for industries with high labour mobility, including :

  1. the establishment of Industry Schemes through tender (paragraph 2);

  2. the scope of the Schemes and eligibility criteria (paragraphs 3 to 5);

  3. special features of the Industry Schemes (paragraph 6);

  4. incentives to employers (paragraphs 7-8); and

  5. role of the MPFA (paragraph 9).


Establishment of Industry Schemes

2.We propose to authorize, through public tender, corporate trustees to operate Industry Schemes. The functions of trusteeship, fund management, custodianship and scheme administration will be tendered in a package. The bidding parties can be a single company or a consortium of service providers.

Scope of the Schemes and Eligibility Criteria

3.We propose that the MPFA should prescribe the industries for which Industry Schemes should be set up and to determine the suitable number of Industry Schemes to be set up. The MPFA should have the right to amend the prescribed list and revise the number of schemes for each of the prescribed industries.

4.We propose that Industry Schemes should be set up, at the initial stage, to cover the construction industry and the catering industry.

5.We propose that it should not be made compulsory for employers/ self-employed persons of the prescribed industries to join the Industry Schemes. An employer/self-employed person who wishes to join the Industry Schemes should provide the following documents :

  1. a proof of licence/ registration issued under the relevant legislation for the prescribed industries (Annex 1); if the employer is a sub-contractor or subsidiary working for the employer to which/whom the licence/registration is issued, he should provide a proof of the contractual relationship with that employer; and

  2. self-declaration confirming that all employees to be enroled into the Industry Schemes are working in the nature of business to which the licence/registration is issued.

Special Features of the Industry Schemes

6.We propose that an Industry Scheme may have the following unique features to suit the special needs of certain industries, particularly those with abundant manual workers employed and paid on a short term basis :

  1. Calculation of relevant income : Provisions will be made to enable the MPFA to prescribe, for a particular industry in an Industry Scheme, standard rates of contributions on the basis of different income ranges. Such standard rates may be expressed in respect of the monthly or daily income of the employees;

  2. Method of remittance : An Industry Scheme may provide two methods for the remittance of contributions. Employers may remit contributions direct to the trustees of the Industry Scheme in the normal manner as in other regular MPF schemes, or they may remit contributions at the point of paying the salaries, i.e. instant payment of contributions. One of the possible means to achieve the instant payment method is through the use of smart card. The contributions will be transferred in the form of MPF units from the employers' smart card to the employees' cards. The MPF units, which will neither be convertible into cash nor transferable, will be remitted by the employees themselves to the trustee of the Industry Scheme.

  3. Scheme coverage : Provisions will be made to enable the MPFA to waive a particular industry in an Industry Scheme from the eligibility criterion of 60-day employment with an employer.

For illustration purposes, Annex 2 shows in detail how these special features will apply to the construction industry if an Industry Scheme is set up for this industry.

Incentives to Employers

7.The proposed special features in paragraph 6 will facilitate employers in industries with unique problems to comply with the MPF requirements. The employers' duties in respect of calculation and remittance of contributions, preparation and sending out of monthly slips to scheme members and statements to trustees, etc. will be waived (details in paragraph 19 below).

8.In addition to the above incentives, we propose, as additional incentives to attract employers of the prescribed industries to join the Industry Schemes, that the requirement on employers to discharge a number of duties which would need to be done in normal MPF schemes should be waived. The duties are :

  1. Record keeping : Employers will not be required to keep detailed employee records and payrolls for MPF purposes. For employers who choose to remit contributions to the trustees direct (please refer to paragraph 6(b)), they will only need to prepare and keep remittance statements. For employers who opt for instant payment of contributions, they will only need to keep the statements issued by the trustees to them.

  2. Information disclosure : Monthly statements on contributions will be issued by trustees, instead of employers, to the employees. In addition, employers will not be obliged to deliver information from the trustees to the employees e.g. scheme information, annual benefit statements, annual reports, etc. The trustee should have the duty to deliver such materials to members direct.

Role of MPFA

9.The MPFA will be actively involved in the setting up and operation of the Industry Schemes at various stages :

  1. Selection of suitable trustees : The MPFA will be responsible for selecting the suitable trustees and ensuring that the Industry Schemes will be operated in a way that best suit the interests and needs of scheme members of specific industries.

  2. Setting up an Industry Scheme Committee : In view of the unique compliance and enforcement problems for the high mobility industries in the Industry Schemes, the MPFA will need to maintain close liaison with the trustees so as to help iron out any operational problem. An Industry Scheme Committee will be set up, consisting of members appointed by the Government and representatives of the scheme trustees, for the purpose.

  3. Promotion and publicity : The MPFA would help promote participation in the Industry Schemes through its education and publicity programmes.

  4. Stringent monitoring : The MPFA will closely monitor the operation and performance of the trustee of the Industry Schemes. The MPFA will impose a series of reporting requirements on the trustees which will ensure, in addition to the requirements of regular schemes in the market, that the Schemes comply with the selection criteria at all times.


Establishment of Industry Schemes

10.The idea of Industry Schemes is to have a special arrangement for industries with high intra-industry mobility (e.g. construction and catering industries) whereby most, if not all, of the employers in the industry would join the same scheme and, when an employee moves from one employer to another, only a simple paper exercise is needed to transfer him from one participating employer to the other participating employer in the scheme. This will reduce the costs of portability considerably.

11.We resort to the selection of corporate trustees through tendering to set up the Industry Schemes as we are not able to rely on trade unions, employer associations and trade associations to organise them.

12.Industry Schemes are viable in other countries (e.g. Australia and Canada) mainly because of the availability of some large and highly-organised unions to attract the critical mass and facilitate the operation of Industry Schemes :

  1. the unions have systematic records of their members as they are normally involved in helping their members receive their salaries and deduct from their salaries to pay for social securities, taxes and insurance payments etc. It is comparatively easy for the unions to operate retirement schemes based on the existing network; and

  2. many industries have standard rates of salaries set by the unions. This largely facilitates the calculation of the relevant income of the employees and reduces the costs of administrating a retirement scheme.

Such a favourable environment is not available in Hong Kong.

13.We have also considered organising Industry Schemes through employers' associations or trade associations. We have consulted a number of major employers' associations and trade associations. They support in principle the concepts of Industry Schemes but are not prepared to organise such schemes themselves mainly due to the heavy responsibility and administration work involved.

14.In the circumstances, we have to rely on trustees to set up the necessary Industry Schemes. We understand that service providers prefer zero-intervention from the Government, that is, allowing market forces to generate the required Industry Schemes to meet the demand. Both the MPF Specialist Group and the MPF Advisory Board have expressed concern that the successful bidder of the Industry Scheme may have a competitive edge in getting the market share for other regular MPF schemes as it will be perceived as the Government selected trustee.

15.We have carefully considered such views. However, we are concerned that leaving the whole issue to the market may not be foolproof. We aim to ensure, on the one hand, that Industry Schemes will be set up for the industries in need and, on the other, that the number of schemes for each industry is appropriate so that the chances of employees having to switch between schemes during job changes will be minimised.

16.The most equitable way to establish the Industry Schemes is to invite all interested parties to submit tenders. The MPFA will choose the most suitable bidder on the basis of their business plans which will need to cover a number of areas, including, inter-alia, the capital investment, cost recovery rate, scheme features, investment strategy, investment options available to members, fee levels and fee adjustment mechanism, etc.

Scope of the Scheme and Eligibility Criteria

17.We propose not to impose compulsory participation in Industry Schemes. The reasons are twofold. Firstly, the prerequisite for compulsory participation in such schemes is the availability of unambiguous eligibility criteria for the schemes. However, this is technically difficult :

  1. a company may have different arms of business (e.g. hotels also provide catering services). Classification of industries are, therefore, often overlapping; and

  2. there are different classes of employees in a high mobility industry but they do not share the same mobility problem (e.g. administrative staff, architects and engineers in the construction industry would have low mobility while the labourers would be highly mobile).

Secondly, compulsory participation would deprive employers, employees and the self-employed persons of the right in choosing between the Industry Schemes and regular schemes in the market.

18.We propose to set up, at initial stage, Industry Schemes for catering and construction industries. The prescribed industries are selected on the following bases :

  1. Mobility rate : The selected industries have the highest intra-industry labour mobility rate among all industries from our analysis of labour mobility situation of all industries in Hong Kong based on data from the Census and Statistics Department; and

  2. Feasibility : Due to the problems described in 17(a) and (b) above, it is technically difficult to define the scope of an industry, and hence eligibility criteria for the Industry Scheme. However, both of the selected industries have established licensing/registration system in their respective legislation based on which we can conveniently confine the membership of the Industry Scheme.

Special Features of the Industry Schemes

19.In designing the MPF System, one governing principle is to facilitate employers to fulfil their MPF obligations without upsetting the existing mode of operation in their industries. However, for those industries (e.g. construction industry) employing a large number of short term labourers without systematically kept records and payrolls, it would be extremely difficult, if not impossible, for the employers to fulfil their MPF obligations without the proposed special features. The justifications for providing such features are :

  1. Standard rates : Setting standard rates of contributions on a monthly/ daily basis is intended to simplify the calculation of relevant income.

  2. Remittance methods : Instant payment of contributions ties in with the existing short term or even daily payment method commonly used in certain industries. It is in the best interest of the employees to receive their contributions at the point of payment of their salaries so as to avoid disputes and problems of recovering the contributions at a later stage. For the employers, they will not have to :

    1. remit contributions to the trustee;

    2. issue monthly pay slips to the employees; and

    3. prepare, submit and keep remittance statements.

      For employers which are more well-established, we leave the flexibility for them to choose the normal remittance method which may best suit the operation of their companies.

  3. Scheme coverage : Due to the problems described in paragraph 19 above, it will be extremely difficult for an employer to count whether an employee has met the 60-day eligibility criterion.

20.It will be the MPFA who decides whether to apply the special features to a particular industry in an Industry Scheme, taking into account the characteristics of the industry and in consultation with the Industry Scheme Committee, the relevant unions and trade associations.

Incentives to Employer

21.The crux to a successful Industry Scheme is to ensure almost all employers in the industry join the same scheme. Otherwise, it cannot resolve the cost problem for the employees; the limited membership size could also affect the commercial viability of the scheme. As we can neither achieve this through cohesive forces of employer organisations/trade associations/trade unions nor by compulsory participation, we resort to attracting employers by granting waivers to them.

22.As described in paragraph 19 above, the special features under the Industry Schemes help simplify considerably the obligations of the employers in industries with unique compliance problems. This should help to attract the employers to join the Industry Schemes.

23.The waivers described in paragraph 8 will also facilitate the compliance of the employers in industries with high intra-industry labour mobility because :

  1. Record keeping : Under a normal MPF scheme, employers will be required to keep the monthly remittance statements for a prescribed period. This document contains basic information such as name, ID number, relevant income and amount of contributions for each employee. In addition, employers will also be required to keep employee records and payrolls for an employee for a prescribed period. This is mainly for auditing and investigation purposes. However, it will be very difficult for employers with a large number of highly mobile employees to fully comply with such requirements. We, therefore, streamline the requirements for employers in the Industry Scheme as an incentive measure. We would rely on the remittance statements or trustee statements and employee records kept under the Employment Ordinance or kept for tax purposes for MPF investigations. This may not be entirely satisfactory but, given the high mobility in these industries, would appear to be the only practicable approach.

  2. Delivery of information : Under a normal MPF scheme, an employer will have the duty to deliver to employees certain information materials prepared by trustees e.g. scheme information, annual benefit statements, annual accounts and reports. The purpose is to cut down mailing costs. However, under an Industry Scheme where scheme members are highly mobile, it is practically difficult to rely on employers to act as a mailing box.

24.To avoid abuse of the proposed waivers, the MPFA may check from time to time whether admission to the Industry Scheme is done in accordance with the eligibility criteria. This can be done by comparing the list of participating units of the Industry Scheme with the registers of licensees kept by the relevant authorities.

Role of the MPFA

25.We recognise that it is important for the MPFA to play an active role in the establishment and operation of the Industry Scheme to ensure that the interests of the scheme members are being adequately taken care of. It is also important for the MPFA to monitor the scheme trustees on an on-going basis so as to ensure that the selected trustees satisfy the selection criteria at all times. The proposed measures will enable the MPFA to oversee the effective operation of the Industry Scheme and the performance of scheme trustees. We believe that the present proposal represents a fine balance between an effective monitoring role of the MPFA, protection of the interest of scheme members and minimum impact on the overall MPF market.

26.We consider it not in the interest of scheme members for the MPFA to operate an Industry Scheme by itself. Although scheme members may psychologically feel that it will be more secure, the disadvantages far outweigh such a psychological comfort because :

  1. the Scheme will not be able to use the existing expertise and infrastructural facilities in the market;

  2. the Scheme will not be able to benefit from the economies of scale that it could have should it be operated by an approved trustee in the market who would probably be running other regular schemes concurrently;

  3. the Industry Scheme will not be able to enjoy the advantages of free market competition as well as efficiency and flexibility of private management;

  4. factors in (a) to (c) above will increase the administrative costs of the Scheme;

  5. it will most probably have lower returns as experience of other countries shows that the investment returns of publicly managed schemes are considerably lower than those of the privately managed ones.

Mandatory Provident Fund Office
Financial Services Bureau
14 November 1997

Annex 1

Eligibility of Enrollment into Industry Scheme

Proof to
be Produced
No. of
CateringFood Business Licence granted to persons or companies in accordance with Food Business Bylaws (Cap. 132).

20,000 200,000
Construction Certificate of registration in the registers of registered contractors and registered ventilation contractors as specified in the Buildings Ordinance (Cap. 123) or in the register of registered electrical contractors as specified in the Electricity Ordinance (Cap. 406); or letter issued by the Works Bureau confirming the inclusion in the Approved Contractors for Public Works List I or II.

12,000 245,000
Total :32,000 445,000

Annex 2

Special Features of the Industry Scheme
Using Construction Industry for Illustration Purpose

Problems of the Construction Industry

There are a number of problems that are specific to the construction industry :

  1. High intra-industry mobility : The average mobility of construction workers are two to three times higher than the other employees. Many are employed on a very short-term or even daily basis. Coupled with the problems in (b) and (c) below, it is extremely difficult to comply with the 60-day rule under the MPF System;

  2. Payment pattern : It is common for construction workers to be paid on a daily or very short-term basis in order to save the calculation and record keeping work and avoid disputes. It is extremely difficult to calculate the relevant income for MPF purposes and remit and deduct contributions;

  3. Blurred employment relationship : Many sub-contractors may not keep proper employment records and do not establish formal employment agreement or written contracts with the construction workers they employ. It is not always easy to determine the employment relationship for MPF purposes.

Proposed Special Features for the Construction Industry

2.The proposed special features of the Industry Scheme can be applied to the construction industry to help resolve the compliance problems.

Calculation of Relevant Income

3.Instead of calculating contributions based on the relevant income of the construction workers, we propose that contributions should be based on standard rates calculated from the median income of different income ranges. For example :

Income range (per month)Contributions
$4,000 - $6,000$500
Income range (daily)Contribution
$400 - $600$50

Half of the amount of the standard contributions represents employer contributions and the rest employee contributions. That means if an employee's relevant income is $400 a day, the employer shall pay $50 as contributions : $25 from the employer and $25 deducted from the employee's salary.

4.To provide a simple system, a few broad income ranges will be prescribed. We would consult representatives of the construction industry in setting and changing the standard rates.

Scheme Coverage

5.Since the employer may make contributions based on daily income of the employee, the employers do not need to consider whether the employees have been under their employ for 60 days or more and the 60-day requirement does not apply.

Remittance of Contributions

6.We propose to leave flexibility regarding the method of remitting contributions to the employers. The employers may choose the remittance method which is most suitable to their operational needs :

  1. Remittance by employer

    1. Employers may remit the contributions direct to the trustees of the Industry Scheme. This is to cater for more well-established employers with employee records and payrolls or employers who pay their employees through autopay system.

    2. All the duties of these employers in respect of enrolment and making of contributions will be the same as in regular schemes.

  2. Instant payment of contributions

    1. An employer may choose to make contributions to the employees at the point of paying salaries .

    2. The employer needs to open an account with the approved trustee of the Industry Scheme. He will be given a smart card bearing his identification. He can then buy MPF units from the trustee who will load those units onto the employer's smart card.

    3. The employer will be required to ensure that an employee employed by him has an account with the trustee of the Industry Scheme so that each employee has his own smart card. Otherwise, he has a duty to enrol the employee into the Industry Scheme. Streamlined enrolment procedures can be worked out by the trustee.

    4. The employer, upon paying the salaries to the employees, will transmit through a small electronic device provided by the trustee the standard rates of contributions (in MPF units) from his own smart card to that of employee.

    5. The MPF units received by the employees are not convertible into cash nor transferable. The units can only be deposited into the employees' MPF accounts in the Industry Scheme.

    6. The employees can make use of different form of facilities provided by trustees (e.g. telephones installed in construction sites, ATM machines, etc.) to deposit the MPF units into their MPF accounts.

Duties of Employers

7.An employer who chooses to make instant payment of MPF contributions can be waived a number of duties required under normal MPF schemes :

  1. if the employees already have an account in the Industry Scheme, the employer does not need to enrol individual employees under their employ into the Industry Scheme;

  2. he does not need to inform the trustee of the Industry Scheme of the pay day and the relevant income of the employees;

  3. he does not need to remit contributions to the trustee of the Industry Scheme; and

  4. he does not need to issue monthly pay slips to employees and remittance statements to trustees.

Additional Duties of the Trustee of the Industry Scheme

8.As the employers will be waived of certain duties, the trustee of the Industry Scheme will be required to perform a number of duties :

  1. The trustee will need to issue monthly statements to the employers and employees using instant payment method and send scheme information and annual benefit statements to the employees directly.

  2. The trustee will need to provide convenient methods for the employees to deposit their MPF units.

  3. The trustee will need to assist employees who have lost their smart cards and to re-issue new ones.