FINANCIAL AND MONETARY AFFAIRS
retirement schemes. Its objective is to provide greater certainty that retirement scheme benefits promised to employees will be paid when they fall due. It requires all schemes operating in or from Hong Kong to be either registered with, or exempted by, the Registrar.
All registered schemes must meet certain basic requirements, including asset separation (the assets of a scheme must be kept separate and distinct from the assets of the employer or the scheme administrator); independent trusteeship (there should be at least one independent trustee who must not be the employer, his employee or his associate); restricted investments (any loan to the employer of the scheme or his associate out of the scheme's assets is prohibited, as is any excessive investment in the business undertaking of the employer); funding (the assets of the scheme must be sufficient to meet its aggregate vested and past service liabilities and the scheme shall be funded in accordance with the terms of the scheme); independent audit; actuarial reviews (for defined benefit schemes); and the annual submission of audited financial statements to the Registrar. There are also requirements for disclosure of information regarding the operation of the scheme to its members.
As at December 31, 1997, there were 16 324 registered schemes which covered an aggregate of 861 576 employees, and 1 935 exempted schemes.
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 scheme 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
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