LegCo Subcommittee on MPF System
Information Note
Residual Provident Fund Scheme


This paper describes the proposed operational mechanism of the Residual Provident Fund Scheme (RPFS) :

  1. mechanism for setting up the RPFS (paragraph 2);
  2. eligibility criteria (paragraphs 3 to 4);
  3. special features (paragraph 5); and
  4. role of the MPFA (paragraph 6).


Mechanism for setting up the RPFS

2. We propose to authorize, through public tender, a corporate trustee to operate the RPFS as follows :

  1. the functions of trusteeship, fund management, custodianship and scheme administration will be tendered out as a single package. The bidding parties can be a single company or a consortium of service providers; and
  2. the tenure of the successful bidder is only up to a prescribed period. Towards the end of the period, the MPFA will review and decide whether to extend the tenure or to conduct another tendering exercise.

Eligibility Criteria

3. To assist employers and self-employed persons who have problems in joining MPF schemes in the market to fulfil their MPF obligations, we propose that the MPFA should provide a placement service as follows :

  1. the applicant will need to pay a fee for the placement service. The fee will be refunded to him if he is admitted to the Scheme eventually. The fee will only aim to recover the administrative cost for running the placement service;
  2. the MPFA will ‘advertise’ the profile of the applicant to all MPF trustees through computer network;
  3. the MPFA will provide the applicant with a list of the trustees who respond to the placement advertisement, indicating their willingness to accept the applicant; and
  4. the MPFA will refer the applicant to the RPFS for admission if no trustee responds to the placement advertisement within a prescribed period or if the applicant can produce evidence that he has approached the trustees on the list provided by the MPFA in (c) above but still cannot join any scheme. The evidence may include copies of completed application forms to join the concerned trustees’ MPF schemes.

4. In addition to employers and self-employed persons referred by the MPFA under the circumstances described in paragraph 3 above, we propose that the following categories of scheme members should also be eligible to join the RPFS :

  1. an employee who needs to transfer his individual account (i.e. account left dormant during change of employment) out of an MPF scheme ordered by the court to be wound up;
  2. an individual account holder under a scheme ordered by the court to be wound up whom the liquidator cannot contact prior to the effective day of scheme wind up; and
  3. unclaimed benefits of a scheme member who is eligible to withdraw the benefits but fail to withdraw within a prescribed period (please see the LegCo Information Note on Withdrawal of Accrued Benefits for details).

Special Features

5. We propose that the RPFS should have the following special features to suit the special needs of its potential clientele :

  1. Marketing or promotional activities forbidden : All members of the RPFS will be referred to the Scheme by the MPFA or by other scheme trustees/liquidator under prescribed circumstances (paragraph 4 above). To reduce operational costs, the RPFS trustee will not be allowed to solicit MPF business or launch advertisements or other marketing activities to promote the RPFS.
  2. Simple scheme features : When selecting a suitable trustee, simple scheme features, which entail lower administrative costs, will be one of the assessment criteria. For example, the scheme may be designed to provide a small range of investment options which would tend to reduce the frequencies of switching of investment options by scheme members and hence their administrative charges.
  3. Guaranteed product : It will be a scheme standard for the RPFS to provide, as one of the investment options, a guaranteed product. The declared rate of return of this product should not fall below the guaranteed rate of return.

Role of MPFA

6. The MPFA will be actively involved in the setting up and operation of the RPFS at various stages :

  1. Selection of suitable trustees : The MPFA will be responsible for selecting a suitable trustee and ensuring that the RPFS will be operated in a way that best suit the interests and needs of the scheme members.
  2. Setting up a Management Committee : In view of the unique nature of the RPFS, the MPFA will need to maintain close liaison with the trustee so as to help iron out any operational problem. A Management Committee will be set up, consisting of members appointed by the Government and representatives of the scheme trustees, for the purpose.
  3. Publicity and placement : The MPFA will send lists consisting of all MPF schemes, including the RPFS, to employers and self-employed persons who have not yet joined any scheme. The MPFA will also provide a placement service to persons who have difficulties in enroling into regular MPF schemes.
  4. Stringent monitoring : The MPFA will closely monitor the operation and performance of the trustee of the RPFS. 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 Scheme comply with the selection criteria at all times.
  5. Reviewing the tender : We propose to enable the MPFA to review the operation of the RPFS and the performance of the trustees. The MPFA may, if necessary, amend the tender conditions after a tenure expires to suit the prevailing needs or even replace the trustees.


Mechanism for setting up the RPFS

7. The MPFS Ordinance stipulates that a Residual Provident Fund Scheme shall be established before the inception of the MPF System and it shall be operated by a corporate trustee. The most equitable way to establish the RPFS 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.

8. We expect that participants of the RPFS may include small employers with a handful of low-income employees or self-employed persons with low and unsteady income. Given the potential clientele, the administration of the RPFS may be more costly than a regular MPF scheme. It is possible that the trusteeship and scheme administration functions of the Scheme alone will not attract any bidders. However, the fund management part of the operation would be quite attractive. To ensure that all functions of the RPFS will be underwritten and to drive down costs through competition among bidders, we propose that all management functions of the RPFS should be tendered out in one package.

Eligibility Criteria

9. It is stipulated under the MPFS Ordinance that the principal purpose of the RPFS is to provide, as a last resort only, membership of that Scheme to employers or self-employed persons who cannot through their own efforts join the regular MPF schemes in the market to fulfil their MPF obligations. The principal ordinance also provides a mechanism which requires the concerned employers or self-employed persons to authorize the MPFA to assist them to join the MPF schemes in the market. Only when the MPFA fails to do that then the applicant will be admitted to the RPFS.

10. We envisage that the market will be able to meet most of the MPF needs, even for small employers and self-employed persons. Under the MPF System, big employers will probably become the prime target for all service providers. They will be able to enjoy more favourable discounts and hence lower fees than small employers and self-employed persons. However, we do not think that this will lead to a significant number of small employers/self-employed persons getting a totally raw deal. Given 87% of employers in HK are small employers employing one to nine employees, which account for one third of the workforce, the market will not ignore this huge potential clientele.

11. We envisage that the MPF market is likely to be stratified : certain service providers will only target at big employers, whilst those with extensive retail network will accept both big and small clients and the fringe players may survive the competition by taking in small employers and even self-employed persons. In the circumstances, the number of "left-overs" should be small and, hence, the need for the RPFS marginal.

12. While we believe that the market will be able to absorb most of the MPF demand, we cannot rule out the possibility that there will be employers and self-employed persons who cannot join any scheme in the market to fulfil their obligations. For completeness, the RPFS is established as a last resort scheme.

13. To assist employers and self-employed persons who may have difficulties in joining regular MPF schemes, we propose a placement mechanism on the basis of the framework provided in the principal ordinance. We believe that the proposed mechanism is in the best interest of scheme members whilst at the same time achieves the legislative intent of operating the RPFS as a last resort scheme :

  1. Convenience : Employers and self-employed persons who have problems in joining MPF schemes will be provided a direct placement service by the MPFA. The procedures will be streamlined in a way that is easy to understand and follow.
  2. Fairness : Those members who are able to join schemes in the market through the assistance of the placement service will need to pay a fee whilst those in genuine need (i.e. those who are eventually admitted to the RPFS) will have the placement fee waived;
  3. Impact for the market : The placement mechanism serves, to a certain extent, as a screening process to prevent the RPFS from drawing a lot of business away from other registered schemes, thus affecting the competitive environment of the MPF market. This is important because the success of the operation of the entire MPF System depends a lot on the operation of market forces to generate low administrative charges and high quality services. To protect the interest of scheme members not joining the RPFS, there is a need to introduce some measures to prohibit indiscriminate use of the RPFS.

Special Features

14. Given the potential clientele of the RPFS, the administrative costs of the Scheme will likely be higher that those of a normal scheme. It is, therefore, necessary to introduce measures to reduce the costs of the Scheme and, hence, the administrative fees to be borne by scheme members. The requirement of the RPFS trustee to design simple scheme features and the proposal to forbid him from promotional activities are mainly for the purpose of containing costs.

15. The provision of a guaranteed product as one of the investment options is to ensure that scheme members of the RPFS will be given such a choice. As many of the scheme members are likely to be those in low and unsteady income group with little knowledge about investments, they may prefer a low-risk investment option whilst accepting that the investment return will also be low.

Role of the MPFA

16. We recognise that it is important for the MPFA to play an active role in the establishment and operation of the RPFS 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 trustee on an on-going basis so as to ensure that the selected trustee satisfy the selection criteria at all times. The proposed measures will enable the MPFA to oversee the effective operation of the RPFS and the performance of scheme trustee. We believe that the present proposal represents a fine balance between an effective monitoring role of the MPFA to protect the interest of scheme members and minimum impact on the overall MPF market :

  1. the Scheme will be able to use the existing expertise and infrastructural facilities in the market;
  2. the Scheme will be able to benefit from the economy of scale as the trustee of the Scheme will probably be running other regular schemes concurrently;
  3. the Scheme will be able to enjoy the advantages of free market competition as well as efficiency and flexibility of private management; and
  4. the Scheme will be closely monitored by the MPFA in respect of its operation and the performance of the trustee.

Mandatory Provident Fund Office
Financial Services Branch
10 February 1997

Last Updated on {{PUBLISH AUTO[[DATE("d mmm, yyyy")]]}}