LegCo Panel on Financial Affairs
Progress Report on
Implementation of the Mandatory Provident Fund System
This paper reports on the progress of the preparatory work for the implementation of the Mandatory Provident Fund (MPF) System.
2. As reported in the Legislative Council Brief on Mandatory Provident Fund Schemes Ordinance (Commencement Notice) 1999 and Mandatory Provident Fund Schemes (Fees) Regulation issued on 10 March 1999, the Mandatory Provident Fund Schemes Authority (MPFA) has drawn up the following timetable for the four key stages of implementing the MPF :
|(i)||Licensing (i.e. approval of trustees and investment products, registration of schemes and invitation of tenders for industry schemes) ||second half of 1999
|(ii)||Exemption of ORSO schemes||January 2000 to|
|(iii)||Enrolment into MPF schemes||January 2000 to|
|(iv)||Collection of MPF contributions||1 December 2000
3. To facilitate all parties concerned to make suitable preparation, the MPFA announced the implementation timetable on 9 March 1999. The timetable was drawn up after consultation with the retirement schemes industry, employer groups and the MPF Schemes Advisory Committee. The preparatory work for implementing the MPF System has also been planned to tie in with the timetable. We, therefore, believe that this is a reasonable timetable achievable by all parties concerned.
Progress of Preparatory Work
4. The MPF System is a new, large-scale system covering the whole workforce. The preparatory work involved to launch it is complicated and multi-faceted. Since its establishment in September 1998, the MPFA has been pressing ahead in full steams on all fronts in preparation for the implementation of the MPF System. This includes :
- setting up an executive arm for the MPFA;
- preparing for the licensing;
- preparing for the exemption of existing schemes governed under the Occupational Retirement Schemes Ordinance (ORSO) from the MPF requirements; and
- preparing for large-scale and territory-wide education and publicity programmes for employers, employees and self-employed persons.
The progress of such preparatory work is set out in paragraphs 5 to 17 below.
(a) Establishment of Executive Arm for MPFA
5. This requires the recruitment of 266 staff members for the new regulatory authority, the development and installation of an Information Management System (IMS) to assist the MPFA to perform its regulatory duties and acquisition of suitable office premises for the MPFA.
6. Staff Recruitment. The consultancy study on the organizational structure and the staff remuneration packages of the MPFA has been completed and its recommendations have been accepted by the MPFA Management Board ("Management Board"). The staff remuneration packages have been determined in consultation with the Financial Secretary while the packages for the Executive Director level and above have also been endorsed by the Chief Executive. Staff recruitment will be conducted in phases to tie in with the key steps of the preparatory work. The first phase of the recruitment exercise involving mainly the positions responsible for licensing has already commenced in March 1999. An executive search firm will be engaged to advise the MPFA on its recruitment strategy and to recruit the senior positions.
7. IMS. The tender exercise to select consultants for the IMS project has been completed with the assistance of the MPFA IMS Committee, which consists of three co-opted members who are IT experts. PricewaterhouseCoopers (PwC) has been awarded the contract on 31 March 1999 and the IMS project will commence on 19 April 1999. PwC is bound contractually to the following timetable :
|IMS Core System 1||April 2000
|Entire IMS System 2||October 2000
8. The MPFA IMS Committee will assist the MPFA to monitor closely the development of the IMS to ensure that the system is properly in place to tie in with the implementation of the MPF System.
9. Office Accommodation. The Management Board has selected the International Financial Centre to accommodate the future office of the MPFA. Preparation for fitting out works has already started in April 1999. The new office is expected to be ready for occupation in July/August 1999, to tie in with the IMS project and the staff recruitment programme.
10. Before an MPF scheme can accept any member, the scheme trustee must :
- seek the MPFA's approval to become an MPF trustee;
- seek the approval of both the MPFA and Securities and Futures Commission (SFC) for the investment product of the scheme; and
- register the scheme with the MPFA.
11. To prepare for this licensing process, the MPFA will need to :
- issue guidelines to service providers setting out the approval criteria for licensing and application requirements;
- draw up codes on approval of investment products setting out the division of labour between the MPFA and SFC;
- make the MPF Schemes (Fees) Regulation ("Fees Regulation") since it is a statutory requirement that an application for licensing must be accompanied by an application fee of such amount as prescribed by the Fees Regulation; and
- establish a regulatory framework together with the SFC, the Insurance Authority (IA) and the Hong Kong Monetary Authority (HKMA) for regulating intermediaries selling MPF products.
12. Guidelines and Codes. All the guidelines in respect of licensing and investment have been issued. The codes on approval of investment products will be issued in April 1999. This should allow enough time for the service providers to prepare for the applications for licensing.
13. Fees Regulation. The Fees Regulation has been endorsed by the Executive Council on 9 March 1999 and will be submitted to the Legislative Council in April 1999. We wish that the Fees Regulation would be approved for implementation within the current LegCo session. The MPFA considers it more prudent to start accepting formal applications for licensing in August 1999. However, informal discussions with the applicants will be undertaken a few months before this date. The MPFA aims to complete the licensing exercise by the end of 1999 but whether this can be achieved will depend on the number of applications received.
14. Regulation of Intermediaries. The MPFA, the SFC, the IA and the HKMA have agreed in principle that the regulatory framework should build upon the existing regulatory mechanisms for the marketing of securities and insurance products, with the MPFA acting as the lead regulator. Examination requirements should also be introduced for intermediaries selling MPF products. We are now consulting the industry and aim to start the examination process as soon as July this year so that the intermediaries could obtain the necessary qualifications before the end of the year to tie in with the timetable for marketing and enrolment.
(c) ORSO Interface Arrangements
15. The MPF legislation provides that ORSO schemes may be eligible for exemption from MPF requirements if they satisfy the prescribed conditions. One of the criteria for exempting ORSO schemes from MPF requirements is that the schemes seeking application must be governed by trust. Thus, existing ORSO schemes that are under insurance arrangements will need to be converted into trust arrangements before the exemption application. The Office of the Registrar of Occupational Retirement Schemes (ORORS) has agreed in principle with the industry on how to streamline the conversion procedures.
16. The MPFA will continue to work closely with the ORORS to ensure that the conversion process is completed well before the commencement of the application process for ORSO exemption.
(d) Public Education and Publicity Programme
17. The MPFA will need to conduct public education and publicity programmes on the MPF System especially for small employers and self-employed persons to ensure its smooth implementation. A comprehensive MPF publicity strategy and programme have been worked out and will be submitted to the MPF Schemes Advisory Committee for discussion in May 1999. Meanwhile, a number of initiatives have already been taken to promote the MPF System including a telephone enquiry hotline, newspaper articles, leaflets and a fact sheet.
18. While we have announced a timetable for implementation of the MPF in March 1999, we still need to make commencement notices in batches to bring relevant provisions into force in accordance with the timetable. These commencement notices will have to be endorsed by the Executive Council and tabled at the Legislative Council for negative vetting. The commencement notices for provisions relating to making contributions will be made at a later stage. We will closely monitor the progress of the preparatory work and review the situation in the second quarter of 2000, in particular the progress of the test runs on the MPFA's IMS and the ORSO exemption process, so as to confirm the date from which mandatory contributions will become payable.
Mandatory Provident Fund Authority
Note (1) : The IMS Core System covers functions to build up databases on trustees, schemes and investment products; functions to monitor enrolment into MPF schemes; and functions to process applications for ORSO exemption.
(2 ) : Other functions to be completed in the second phase include those which will assist the MPFA to monitor default contributions, perform inspection and investigation duties, build up a register for preserved account holders, etc.