Amendment Bill to Enhance Operation of MPF Schemes (17

Press Release

Amendment Bill to enhance operation of MPF Schemes Wednesday, April 17, 2002

The Mandatory Provident Fund Schemes (Amendment) Bill 2002 which seeks to enhance the efficiency and effectiveness of the Mandatory Provident Fund (MPF) System and to adjust the minimum level of income for MPF contributions from $4,000 to $5,000 per month will be gazetted this Friday (April 19, 2002).

"The Bill is the result of the first phase of a comprehensive review of the operational aspects of the MPF System conducted by the Mandatory Provident Fund Schemes Authority (MPFA), through a broad-based MPF Schemes Operation Review Committee," a Government spokesman said today (April 17).

Major proposals in the Bill include the setting up of a mechanism to review the minimum and maximum levels of relevant income for the purpose of making MPF contributions; proposals to enhance the efficiency and effectiveness of the operation of the MPF System; and measures to step up protection for MPF scheme members.

At present, the Mandatory Provident Fund Schemes Ordinance (the Ordinance) provides that a relevant employee or self-employed person whose monthly relevant income is less than the minimum level is not required to make MPF contributions. Also, if his monthly relevant income is above the maximum level, he is not required to contribute to the MPF schemes in respect of the amount in excess. The minimum and maximum income levels have been set at $4,000 and $20,000 per month respectively since 1995, when the Ordinance was enacted. With the passage of time, adjustment of the levels of income is needed.

"In determining the minimum and maximum levels of relevant income in 1995, the following principles were applied: - The minimum income level was set at 50% of the monthly median employment earnings; and - The maximum income level was benchmarked at the 90th percentile level of the monthly employment earnings distribution.

"The Bill provides that in conducting the review every four years, the MPFA must take into account the above principles," the spokesman said.

In applying the above principles, the Bill now proposes that, for the coming four years, the minimum income level should be adjusted to $5,000 per month while the existing maximum income level should be retained at $20,000 per month.

"We believe that the proposed levels of minimum and maximum relevant income set out in the Bill strike a balance between avoiding to burden employers and employees on one hand, and protecting the future retirement needs of workers on the other," the spokesman explained.

The Bill also seeks to enhance the protection for MPF scheme members and make failure of an employer to enroll his employees into MPF schemes a "continuing offence", i.e. an offender can be prosecuted again if he fails to enroll his relevant employee after conviction. In addition, a daily fine is proposed upon second or subsequent convictions, if the offence continued. It also contains provisions to the effect of extending the prosecution time-bar for non-enrolment and default contributions to six months after the discovery of the offence by, or coming to the notice of, MPFA. The current time bar is six months from the date of the occurrence of the offences.

"These proposals have been made in the light of the MPFA's operational experience. They would enable the Authority to tackle non-enrollment and default contribution in a more effective, cost-efficient and straight-forward manner," the spokesman said.

Furthermore, the Bill seeks to amend the investment provisions in the law to provide wider investment choices. For example, constituent funds with the sole objective of tracking a particular market index will be allowed, subject to prior approval of MPFA.

"Whilst it is our overriding objective to ensure that scheme members' interests are protected, we are also mindful of the need to provide enough latitude to allow MPF funds to be invested in and capitalised on quality products," the Government spokesman added.

The Bill also seeks to implement a number of proposals put forward by the MPFA to simplify the administration and operation of MPF schemes. These include proposals to streamline the arrangements regarding employees' contribution holiday, MPF contribution remittance, and notification for cessation of employment.

Major proposed amendments are supported by the MPF Advisory Committee. The LegCo Panel on Financial Affairs was also consulted of the proposals at its meeting on January 7, 2002.

"We hope that the Bill will be enacted during the current LegCo session, so that relevant amendments such as the adjustment of the minimum income level could be effected as soon as possible," the spokesman emphasised.

"We recognise that employers and service providers need time to adjust their administrative systems in order to comply with some of the new legislative requirements and in this connection, a reasonable transitional period would be provided," the spokesman explained.

"As the MPF System affects over two million employees, employers as well as service providers, timely review and enhancement of the operation of the System is vital in ensuring that the System is efficient, effective and user-friendly," the spokesman said.

The Bill will be introduced into the Legislative Council on April 24, 2002.