Hong Kong 2006 - Financial and Monetary Affairs

On December 1, 2000, the Mandatory Provident Fund (MPF) System was implemented to help encourage the workforce to save and invest for their retirement. It is a privately managed, employment-related mandatory system of provident fund schemes. Unless exempted, employees and self-employed people aged between 18 and 65 are required to join MPF schemes.

The employer and employee are each required to contribute 5 per cent of the employee's relevant income to a registered MPF scheme, subject to the maximum and minimum levels of income for contribution purposes. The accrued benefits are fully vested in the scheme members and can be transferred from scheme to scheme when employees change employment or cease to be employed. A self-employed person has to contribute five per cent of his or her relevant income. In normal circumstances, benefits must be preserved until the scheme member attains the retirement age of 65.

By year-end, 98.5 per cent of employers (about 232 300), 97.7 per cent of relevant employees (2 071 100) and 74.5 per cent of self-employed persons (285 100) had enrolled in MPF schemes. Total MPF assets amounted to about $202.41 billion, with monthly MPF contributions amounting to around $2.4 billion.

Unlike the compulsory MPF schemes, occupational retirement schemes registered under the Occupational Retirement Schemes Ordinance are voluntary schemes established by employers. To tie in with the implementation of the MPF system, schemes registered under the ordinance that fulfilled certain conditions were exempted from MPF requirements. Members of such schemes may choose to remain in the existing scheme or join an MPF scheme. At year-end, there were 4 996 MPF-exempted occupational retirement schemes covering over 450 000 employees.

Established in September 1998 under the Mandatory Provident Fund Schemes Ordinance, the Mandatory Provident Fund Schemes Authority (MPFA) is responsible for regulating and supervising the MPF system and ensuring compliance with the ordinance. It is also the Registrar of Occupational Retirement Schemes. To ensure that the interests of MPF scheme members are protected, the MPFA closely monitors the operation of MPF trustees and other service providers, investigates cases of non-compliance identified through reports, complaints or proactive inspections, and takes enforcement actions accordingly. The MPFA also conducts MPF investment education to strengthen the public awareness of the need to take care of their MPF investment and disseminate more in-depth messages that will facilitate scheme members in choosing the appropriate funds.

To enhance the effectiveness and efficiency of the MPF system, the MPFA reviews the MPF legislation constantly in the light of operational experience. A number of amendments to the legislation have been introduced since the implementation of the MPF system. The Mandatory Provident Fund Schemes (General) (Amendment) Regulation 2006 came into operation in December 2006 to, inter alia, improve operation of the investment regulation. Further proposed amendments covering issues such as scheme administration and enforcement are being worked on for introduction into the legislature in 2007.

To further improve the disclosure of information on MPF funds, the MPFA conducted a consultation on proposals to improve the content of annual benefit statements. Preliminary work has also started on the development of a comparative platform for MPF funds, focusing on fees and charges.