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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' yearly emoluments.

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 protection.

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 and contributors.

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.

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The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees




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