Mandatory Provident Fund Schemes

The Mandatory Provident Fund Schemes Ordinance (MPFO), enacted in
August 1995, provides the framework for a privately managed mandatory
system of provident fund schemes that will cover members of the
workforce aged 18 or above. The Mandatory Provident Fund (MPF)
System will provide for joint contributions by the employer and employee,
each contributing 5 per cent of the employee's income to a registered trust
cheme managed by approved trustees. The accrued benefits will be fully
vested in the scheme members and can be transferred from scheme to
scheme when employees change or cease employment. A self-employed
person will have to contribute 5 per cent of his or her income. Benefits
must be preserved until retirement.

During 1997, the Mandatory Provident Fund Office completed the
development of the MPF System and draft subsidiary legislation necessary
for the implementation of the MPFO. Draft legislation, covering the
regulatory and operational aspects of the MPF System, was completed
after extensive consultation with interested parties, including the
Legislative Council, labour unions, employer groups, professional and
other relevant organisations.

Some contentious issues arose during the consultation process, such as
interface arrangements for existing retirement schemes voluntarily
established by employers, fees to be borne by MPF scheme members and
requirements on the minimum level of Hong Kong Dollar denominated
assets. The government aims to achieve a high degree of security of
retirement protection through an effective system of prudential regulation
and supervision. Proposals for the MPF System are developed to protect
scheme member interests and to give service providers sufficient
flexibility to manage the schemes for best results. Requirements in respect
of scheme registration, transfer of accrued benefits, scheme accounting
and auditing and other aspects have been streamlined in order to minimise
the cost burden on MPF scheme members. Draconian rules are avoided.
The proposed MPF system represents a good balance between the
security of scheme assets and efficiency in scheme operations. It is to
serve the best interests of the community.

The draft legislation on MPF has been submitted to the Provisional
Legislative Council for enactment. The government's target is to put the
MPF System in place by 1998. An MPF Schemes Authority will be
established to supervise the operation of the system.

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