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The Management Board of the Mandatory Provident Fund Schemes Authority (MPFA) met today (10 December 2001) to review progress reports of the MPF System. The Chairman, the Hon. Charles Lee Yeh-kwong, said board members were pleased with the accomplishments achieved in the first year of MPF operation.

Mr. Lee said: "Within just one year after the launch, the MPF System has achieved considerable success in major areas in terms of enrollment, public acceptance as well as scheme operation. The enrollment rate for employees has reached 95 per cent. This is a good start and the MPFA will continue to build on this foundation with a view to refining the System and to improving scheme administration."

The Aggregate Net Asset Values of all MPF schemes amounted to $30.815 billion as at end of October 2001, including assets transferred from the voluntary occupational retirement schemes (ORSO). Monthly total amount of MPF contributions stood at about $2 billion, with nine per cent from voluntary contributions.

At the meeting, the Management Board also discussed the proposal of introducing into the MPF legislation an adjustment mechanism for the minimum and maximum relevant income levels. The Management Board endorsed the following proposals which were discussed and recommended by the Mandatory Provident Fund Schemes Advisory Committee at its earlier meeting:

a. To review the minimum and maximum relevant income levels concurrently every four years;

b. To adopt 50 per cent of the monthly median employment earning (median income) as the basis to adjust the minimum relevant income level; and

c. To adopt 90 per cent of scheme coverage as the basis to adjust the maximum relevant income level.

The present median income is $10,000 and the minimum relevant income would hence be revised to $5,000. The current maximum relevant income level of $20,000 can remain unchanged and still comply with the 90 per cent scheme coverage. According to the MPFA analysis based on latest Census and Statistics figures and membership data on the MPF Schemes and the ORSO Schemes, approximately 90 per cent of Hong Kong's employees, including MPF scheme members, civil servants, members of ORSO Schemes, teachers as well as expatriate employees, are already making retirement contributions based on their full monthly earnings.

The minimum and maximum levels of relevant income are currently prescribed in schedules to the Mandatory Provident Fund Schemes Ordinance as $4,000 and $20,000. Employees earning less than $4,000 are not required to make mandatory contributions but their employers need to contribute five per cent of their monthly income. For employees earning more than $20,000, the mandatory provident fund contributions for their employers and themselves are capped at a maximum of $1,000 each. The Ordinance does not specify the basis for arriving at the prescribed amounts, nor a mechanism for reviewing these two income levels.

Some members of the public, including members of the Legislative Council, have earlier suggested that minimum relevant income level should be increased to reduce the financial hardship of the lower income employees. There were also views that both the minimum and maximum income levels should be adjusted periodically to reflect changes in the economy and income levels.

The Secretary for Financial Services, Mr. Stephen Ip, in summing up a motion debate on reviewing the MPF System in Legislative Council on 13 June, 2001, agreed that a mechanism to adjust the maximum and minimum levels of income would be considered when the MPFA conducted a review on the operational aspects of the MPF Schemes Ordinance at the end of the year. This was to set up a mechanism to adjust the income levels in an orderly manner instead of changing the upper and lower limits arbitrarily at any time, causing confusion to employers and employees.

Mr Ip said that the Government would consult members of the Legislative Council on the setting up of the mechanism. He also pointed out that setting up a mechanism of course did not mean that adjustment would be made immediately.

At today's meeting, Management Board members discussed the need for striking a reasonable balance between short term goals and long term policy objectives when selecting a basis for review. Ideally, the minimum relevant income level should be set at a level high enough to exclude those employees in the lower income bands from contributing so as to alleviate their financial hardship during times when economic conditions are poor. This level, on the other hand, should not be too high as to drastically reduce in the long run the amount of accrued benefits for retirement.

Regarding maximum relevant income, the level was set at a level so that employees earning less or equal to this level would need to make MPF contributions on the basis of the total income. As the purpose of MPF is to provide for retirement of the working population, the coverage should be as broad as possible.

At today's meeting, the Management Board was also briefed on the progress of proposed amendments to the MPF legislation.

The proposed amendments have been discussed at the MPF Schemes Operation Review Committee where consensus had been reached. They were also submitted to the Advisory Committee for discussion on 29 November 2001 where members supported all the proposed amendments. Proposed amendments include placing monies-in-transit in interest-bearing accounts, notification requirement on change of name of employer, and the admissibility of index-tracking collective investment schemes.

The endorsed proposed amendments will be forwarded to the Government for consideration. Tentatively, the Government intends to introduce the amendments to the Legislative Council in April 2002.


End/Monday, December 10, 2001