LegCo To Consider Hong Kong Pension System Reforms
Tuesday, January 8, 2013
The Legislative Council (LegCo), during a meeting on January 9, will debate a
motion on comprehensively reviewing Hong Kong’s Mandatory Provident Fund
(MPF) scheme, to improve its effectiveness.
The MPF was implemented in December 2000. At present, there are over 3m employee
contribution accounts and around 4m preserved accounts in Hong Kong, and, as
at September 2012, the net asset value of approved constituent funds under the
MPF scheme reached HKD412.4bn (USD53.5bn).
All employed individuals aged 18 to 65 and normally residing and working in
Hong Kong are required to join an MPF scheme. Subject to the maximum and minimum
levels of income of, currently, HKD25,000 and HKD6,250 per month respectively,
an employer will deduct 5% as a mandatory contribution to a registered MPF scheme,
as well as also contributing an equivalent amount.
For employees, the mandatory contributions are tax deductible, subject to the
maximum amount of HKD15,000 per year, while, for employers, the MPF contributions
are tax deductible to the extent that they do not exceed 15% of employees'
The motion to be debated will allege that the current condition of the MPF
scheme is of major concern. Worries have been expressed over the high MPF
administration fees, the lack of supervision over fund performance, the erosion
of contributions by intermediaries and sponsors, and the use of the accrued
benefits derived from employers' contributions to offset severance payments
and long service payments, all of which directly affect employees' retirement
Therefore, LegCo will be urged to instruct the government to study the implementation
of a universal integrated retirement protection system in addition to the MPF
Scheme, so as to make up for the inadequacies in the MPF system.
However, in the meantime, LegCo may look for the enactment of legislation to
abolish the mechanism whereby the accrued benefits derived from employers' contributions
under the MPF scheme are used to offset long service payments and severance
payments; and to set a ceiling for the fund expense ratio (FER) of MPF funds
and require trustees to set out the actual amounts and ratios of various fees
and FER in the annual reports issued to employees.
The implementation of a full portability arrangement for the MPF scheme could
be recommended to enable employees to choose trustees on their own, establish
"one lifelong account" for employees and credit the MPF accrued benefits
derived from employer's and employee's contributions to this account, so as
to prevent them from having multiple preserved accounts due to change of jobs.
To strengthen the regulation of MPF investment products, it is also suggested
that the sales practices of intermediaries should be regularly reviewed, that
substandard MPF funds should be eliminated, and that a monitoring system be
established under which the total amount of fees charged by MPF funds is linked
to performance. It is also proposed that sponsors of MPF schemes should be regulated
to enhance the monitoring of scheme sponsors' performance and profits, and to
establish a clear tripartite relationship among Scheme sponsors, intermediaries
Finally, a public trustee could be set up to operate a separate MPF scheme,
charging lower administration fees and providing low-risk capital preservation
funds which are guaranteed to be inflation-linked, for employees to choose, so
as to achieve the objective of increasing competition to make other trustees
lower fees and improve performance.