ENG-2011 — Page 133

Financial and Monetary Affairs | 97

Schemes. To protect the interests of MPF scheme members, the MPFA monitors closely the operation of MPF trustees and other service providers, investigates cases of non-compliance, complaints or proactive inspections, and takes enforcement actions where necessary. The MPFA also conducts MPF investment education to strengthen public awareness of the need to take care of their MPF investment and disseminates messages that assist scheme members in choosing appropriate MPF funds. The operations of MPFA are mainly financed by the investment returns generated from a one-off Capital Grant of $5 billion from the Government.

Recent Developments

The Government and the MPFA have been working closely reviewing the various aspects of the operation of the MPF System to strengthen its effectiveness and efficiency. The major initiatives in 2011 are set out in the ensuing paragraphs.

Having regard to the findings of the review of the Min Ri and Max RI for MPF contribution in 2010, conducted by MPFA as required under the MPFSO, the Government put forward legislative proposals to increase the Min RI and Max RI to Legislative Council, which subsequently approved in June and November 2011 respectively the proposals to increase the Min RI from $5,000 to $6,500 per month with effect from November 1, 2011, thus lessening the financial burden on lower- paid employees and self-employed persons making MPF contributions and to increase the Max RI from $20,000 to $25,000 per month with effect from June 1, 2012 in line with the policy objective of encouraging the workforce to save for basic retirement needs.

The Government introduced a bill to provide a statutory regime for better regulation of MPF intermediaries in December 2011 to pave the way for early implementation of the ECA which would be conducive to greater market competition. In anticipation of the implementation of the ECA, individual MPF trustees introduced new MPF schemes with lower fees or reduced the fee level of their existing schemes. At the end of 2011, the average fund expense ratio was 1.77 per cent, or more than 15 per cent lower than the 2.1 per cent level in December 2007.

The MPFA embarked on a study on the supporting measures to facilitate the implementation of an arrangement for full portability by scheme members of all of their accrued benefits in future. The MPFA also launched a consultancy study on the administrative costs of MPF trustees to identify measures to further simplify administrative processes and achieve greater economies of scale to reduce costs and allow room for further fee reduction by the trustees. Furthermore, the Government and the MPFA are now working on legislative proposals to implement a mechanism for automatic suspension and re-imposition of levy for the MPF Compensation Fund, currently set at 0.03 per cent per year10. The suspension would reduce scheme. expenses and members' fees and charges by 0.03 per cent per year.

10

As a result of the more than $1.5 billion accumulated by the fund at the end of 2011, the levy can be suspended, because the fund's reserves have exceeded the $1.4 billion mark at which suspension is allowed.