XN000022-1995-05-09 — Page 3

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Commenting on criticism that the MPF system did little or nothing for those on the lower end of the economic ladder, Mr Leung cited the finding of the consultants' report which pointed out that even someone on $4,000 a month, with a 40 years contribution history, could expect a return in excess of the 40% replacement income recommended by the World Bank.

"Furthermore, let us not forget that the MPF system is based on joint contributions, which means that every dollar an employee pays into the scheme will be matched by another dollar from his employer," Mr Leung said.

Turning to residual provident fund scheme, Mr Leung said although the consultants did not think it was necessary, the Government would include in the primary legislation the power to introduce such a scheme to provide coverage for those employees whose employers for one reason or another were unable to find a retirement scheme in the open market.

"The primary legislation will provide for the establishment of an MPF Authority to administer the scheme. We believe it should be part of Government, and have the flexibility to employ staff on non civil service terms," Mr Leung said.

The consultants estimated that the MPF Authority would require $350 million to set up, and an annual recurrent cost of $270 million for its ongoing activities.

In addition, the consultants estimated that in the first few years, further expenditure of $1 billion would be incurred to cover such matters as public education, enhanced inspection to ensure compliance with the System, and, dealing with existing ORSO (Occupation Retirement Schemes Ordinance) schemes.

"To demonstrate our commitment to implementing the MPF System, and subject to the approval of the Finance Committee, we believe it to be appropriate to contribute to these expenses through a lump sum capital grant of $5 billion to the Authority. We believe that this, taken together with the interest generated from it and income from modest fees and charges on scheme providers, should provide adequate resources for the Authority to operate as a self- standing agency," Mr Leung said.

The compensation fund to be set up under the MPF legislation would cover all schemes, and would aim to make good some or all of the lost benefits in the event of benefit losses through fraud or other unlawful activity, Mr Leung said.

"The compensation fund will not cover losses due to poor investment strategy, as we believe very firmly that to do so would encourage the kind of investment behaviour that we are trying to avoid, "he stressed.

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