ENG-2008 — Page 122

78 Financial and Monetary Affairs

There are plans to improve the insurance supervisory framework. A Government-commissioned study is being carried out on establishing an independent Insurance Authority. The study is expected to be completed in 2009 and the stakeholders will be consulted afterwards.

One of the aims of the study is to give the IA more flexibility in carrying out its work and in hiring staff for the regulatory body to better prepare Hong Kong for the 'risk-based capital regulatory regime' to be adopted by the international community. The Government believes an independent Insurance Authority will benefit the insurance industry in the long term.

To protect policy holders in the event of insurer insolvency, the IA is exploring with the Hong Kong Federation of Insurers options for establishing a Policyholders' Protection Funds (PPFs). Careful consideration will be given to the need to strike a reasonable balance between the scope of coverage, moral hazard problems and additional costs to the industry and the consumers.

To facilitate mutual assistance and exchange of information, the IA concluded a Memorandum of Understanding (MoU) with the Federal Financial Supervisory Authority (BaFin) of Germany in October 2008.

Mandatory Provident Fund Schemes and Occupational Retirement Schemes

Main Features

On December 1, 2000, the 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 5 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, 99.8 per cent of employers (about 237 500), 98 per cent of relevant employees (2 174 700) and 73.7 per cent of self-employed persons (266 700) had enrolled in MPF schemes. Total MPF assets amounted to about $209 billion, with monthly MPF contributions amounting to around $3 billion.

Unlike the compulsory MPF schemes, occupational retirement schemes registered under the Occupational Retirement Schemes Ordinance (ORSO) are voluntary schemes established by employers. To tie in with the implementation of the MPF system in 2000, schemes registered under the Ordinance that fulfilled certain conditions were exempted from MPF requirements. Members of such