LegCo Paper No. CB(1)822/96-97
(These minutes have been seen by the Administration)
Ref : CB1/HS/1/96/2

Subcommittee on Mandatory Provident Fund System

Minutes of Meeting
held on Thursday, 19 December 1996 at 2:15 p.m.
in Conference Room A of the Legislative Council Building

Members present :

    Hon Ronald ARCULLI, OBE, JP (Chairman)
    Dr Hon LAW Cheung-kwok (Deputy Chairman)
    Hon Christine LOH Kung-wai
    Hon CHAN Wing-chan
    Hon CHAN Yuen-han
    Hon Paul CHENG Ming-fun
    Hon SIN Chung-kai

Members absent :

    Hon James TIEN Pei-chun, OBE, JP
    Dr Hon HUANG Chen-ya, MBE
    Hon LEE Cheuk-yan
    Hon LAW Chi-kwong
    Hon MOK Ying-fan
    Hon NGAN Kam-chuen

Public officers attending :

Mrs Pamela TAN
Mandatory Provident Fund Office
Ms Maisie CHENG
Assistant Director
Scheme Operations
Senior Manager
Special Features
Mr John Allen
Deputy Crown Solicitor
Legal Department

Clerk in attendance :

Miss Polly YEUNG
Chief Assistant Secretary (1)3

Staff in attendance :

Ms Connie SZETO
Senior Assistant Secretary (1)5

I Meeting with the Administration

Members deliberated on the following subject areas outlined in the information papers provided by the Administration.

Fund transfer and payment

Circumstances and fees for portability

(LegCo Paper No. CB(1) 537/96-97(01))

Simple mechanism for portability

2. Miss CHAN Yuen-han was concerned that under the proposed system, the onus seemed to be on the employee to submit an application for portability of accrued benefits upon change of employment. She opined that such an arrangement would not contribute to effective consolidation of fragmented accounts held by the employee and urged that the employer should also take up more responsibility in facilitating his employee to make an early decision. In this connection, some members suggested that the employer should be required to remind the employee periodically to confirm his decision in respect of his accrued benefits.

3. Addressing members concerns, the Director of Mandatory Provident Fund Office (D of MPFO) and the Assistant Director, Scheme Operations (ADSO) explained as follows-

  1. The proposed mechanism for portability was simplified in order to minimise administrative costs and the responsibilities of concerned parties were also clearly defined to avoid confusion. It was therefore proposed that upon change of employment, the employee should exercise his option on the transfer of his accrued benefits while the new employer was only responsible for establishing a new MPF account for the employee.
  2. Imposing a deadline on the submission of the portability application form would cause inflexibility since the employee might not be able to find a new employer before the deadline or might simply need more time to make the decision.
  1. The Administration would consider requesting the new employer to ask the employee to indicate his option on the form when setting up a new account for the employee. However, there was reservation on making this a statutory requirement. Apart from possible enforcement problems, consideration had to be given to the capacity of small employers in undertaking this task.

4. On proposed measures to encourage consolidation of scattered accounts held by scheme members, D of MPFO advised as follows-

  1. Education and publicity programmes would be organised to advise members against creating a large number of individual accounts and to consolidate these accounts as far as practicable.
  2. In order to encourage the consolidation of accounts, it was proposed that no administrative fees should be charged during portability of accrued benefits from an MPF account, except for specific expenses incurred for the redemption of investments.

She added that scheme members, on receipt of the benefit statements, would also be aware of the drawbacks of keeping a number of fragmented individual accounts as they would find that these accounts had been eroded by administrative fees.

Measures to minimise costs of portability

5. Some members raised query on the effectiveness of the proposal to waive administrative fees for portability in reducing the total cost since service providers would relocate the cost incurred to other fees payable by members.

6. In response to members, ADSO and the Senior Manager, Special Features made the following points-

  1. The Administration had only proposed that no administrative fees should be charged during portability of accrued benefits but there was no intention to intervene in the costs for redemption of investments.
  2. There were no portability arrangements under existing ORSO schemes to facilitate a costs comparison. Nevertheless, the industry’s estimate of the administrative costs for transferring from one scheme to another was around $80 for each case.
  3. The investment redemption charge was normally recovered by a bid-and-offer spread ranging between 1.5% and 5% and the prevalent spread was about 3%. With an average investment return of some 16% over the past ten years for retirement funds, this charge should not have a significant impact on scheme members.
  4. Since the current trustee had at its disposal a cash pool for paying out to the new trustee upon transfer of a scheme member’s accrued benefits and there was also incoming transfers from other trustees, redemption of the underlying securities would not be necessary in all transfer cases.
  5. The Administration also believed that enhanced competition in the MPF market would lead to lower portability costs.

7. Responding to members’ concern about the impact of portability costs on employees with high job mobility, ADSO advised as follows-

  1. Administration costs per se were fair. However, since this was a mandatory system, the Administration would hope to reduce the costs incurred on employees in high mobility jobs which necessitated frequent scheme transfers.
  2. Although industry schemes might help to reduce the costs of portability for employees with high intra-industry mobility, they could not resolve the cost issue for employees with high inter-industry mobility.
  3. Experience in Australia and Canada had indicated that implementation of industry schemes was very successful since there was active involvement of trade unions. Although service providers were keen on establishing industry schemes for the local MPF market and were examining possible incentives, it would be essential that these schemes should be competitive and be able to attract the participation of employers.
  4. Cross subsidy as a form of costs socialisation was an accepted industry practice already found in the cost structure of many existing voluntary schemes.

8. Referring to the experience of the construction industry in working to set up an industry scheme in the 1980s, Miss CHAN Yuen-han urged the Administration to strengthen its role in assisting employers and employees in setting up such schemes. The Administration undertook to brief members on detailed proposals on industry schemes at future meetings.


Withdrawal of accrued benefits

(LegCo Paper No. CB(1) 537/96-97(02))

Circumstances permitting benefit withdrawal


9. Responding to members’ enquiries, ADSO explained that withdrawal of accrued benefits upon retirement would be permitted when a scheme member had attained the age of 65 or on early retirement at the age of 60. Even though a scheme member left the workforce before the age of 60, withdrawal would not be permitted unless for those benefits kept in small dormant account of $5,000 or less. Withdrawal would be subject to certain provisions to be specified in the subsidiary legislation. In the event that the scheme member continued to work after the retirement age of 65, any further contributions to the MPF would be non-mandatory.

Permanent departure from Hong Kong

10. Some members expressed concern about the proposed criteria of "permanent departure from Hong Kong" which could be used only once as a reason of withdrawal. They considered the proposal too stringent and inflexible since the local population was quite mobile. Moreover, it was common for local employees to be posted to work overseas for a long period of time and for returned emigrants who re-entered the MPF net to leave Hong Kong again after a few years of local employment.

11. In explaining the rationale of the proposal, D of MPFO and ADSO made the following points-

  1. This criterion was to cater for "emigration" and permanent residence abroad. Therefore, withdrawal of benefits on this reason should only be allowed once.
  2. At present, 50% of the workforce were earning less than $10,000 a month. The main objective of the MPF system was to provide basic retirement protection for the general workforce, especially those low-income employees presently without any retirement benefit and whose potential for emigration was relatively low.
  3. As it was difficult and costly to verify whether a person was leaving Hong Kong for good, some form of safeguard was necessary. Lest, a person could easily use "departure from Hong Kong" as a reason to withdraw benefits for other purposes, thus defeating the policy intent of preservation of benefits for retirement.
  4. Reference had been made to the benefit withdrawal criteria of MPF systems of other countries. While the Australian system did not impose restriction on withdrawal on the grounds of permanent departure from the country, there was no such provision in the Chilean system. The Singaporean system permitted such withdrawal but scheme members were required to repay all the withdrawn benefits when they returned to Singapore and rejoined the central provident fund.

12. ADSO added that employees posted to work overseas were not leaving Hong Kong permanently and therefore could not apply for early withdrawal of the benefits.

13. Notwithstanding the explanation, some members still considered that the Administration should explore other options to allow greater flexibility in the light of Hong Kong’s special circumstances. One suggestion by the Chairman was to impose a qualifying period of residence abroad before a scheme member who had previously withdrawn benefits on the grounds of permanent departure from Hong Kong could withdraw benefits on the same grounds again upon rejoining the MPF system.


Offsetting of severance payments (SP) or long service payments (LSP)

14. Miss CHAN Yuen-han requested to put on record that she was against the offsetting of SP and LSP against the employer’s contributions to the employee’s MPF account. She said that while one might argue that LSP should be offset as this payment was also meant to cater for retirement needs, the offsetting of SP was unacceptable as the latter was to compensate for redundancy and not retirement. D of MPFO, in reply, highlighted that the offsetting arrangements of SP and LSP were adopted from the Employment Ordinance (EO) where offsetting these payments against the accrued benefits derived from the employer’s contributions to a retirement scheme was permissible. As issues related to the EO were within the policy purview of the Secretary for Education & Manpower (SEM), the Chairman suggested that members who wished to pursue this issue could raise the matter with the SEM or through representatives at the Labour Advisory Board (LAB). Miss CHAN indicated that she would consider taking up the issue with the Administration and the LAB.

Tracking of MPF accounts

15. Addressing Miss CHAN Yuen-han’s concern about tracking of MPF account to facilitate benefit withdrawal, ADSO advised that the trustee had a duty to notify a scheme member of his eligibility for withdrawal when the member had attained retirement age or after the member had submitted the application form with the required documents to his satisfaction under other circumstances for early withdrawal. The trustee would be required to issue a reminder to the member if the latter had not collected his benefits after six months. It was proposed that the benefits would be defined as "unclaimed" if uncollected six months after the trustee’s written reminder and be transferred to the Residual Provident Fund Scheme to facilitate scheme members or their personal representatives to claim back their accrued benefits in due course.

II Any other business

16. Members agreed to schedule the next three meetings as follows-

  1. Thursday, 9 January 1997 at 4:30 p.m.
  2. Tuesday, 14 January 1997 at 2:30 p.m.
  3. Monday, 20 January 1997 at 8:30 a.m.

17. The meeting ended at 4:15 p.m.

Legislative Council Secretariat
29 January 1997

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