House Committees -- Subcommittee on subsidiary legislation of the Mandatory Provident Fund System (Minutes) 17 Nov 97

Provisional Legislative Council

PLC Paper No. CB(1)566
(These minutes have been
seen by the Administration)

Ref : CB1/SS/5/97

Subcommittee on subsidiary legislation of the
Mandatory Provident Fund System

Minutes of the meeting held on Monday, 17 November 1997, at 9:00 am in the Chamber of the Legislative Council Building

Members present :

Hon Ronald ARCULLI, JP (Chairman)
Dr Hon LAW Cheung-kwok (Deputy Chairman)
Hon WONG Siu-yee
Hon NG Leung-sing
Hon LEE Kai-ming
Hon Mrs Elsie TU, GBM
Hon Mrs Peggy LAM, JP
Hon YUEN Mo
Hon Mrs Sophie LEUNG LAU Yau-fun, JP
Hon YEUNG Yiu-chung
Hon LAU Kong-wah
Hon KAN Fook-yee
Hon NGAN Kam-chuen
Hon CHOY So-yuk

Members absent :

Hon James TIEN Pei-chun, JP
Hon HO Sai-chu, JP
Hon Henry WU
Hon MA Fung-kwok
Dr Hon Mrs TSO WONG Man-yin
Hon CHAN Yuen-han
Hon CHAN Kam-lam
Hon Kennedy WONG Ying-ho

Public officers attending :

Mrs Pamela TAN: Director; Mandatory Provident Fund Office
Ms Maisie CHENG: Assistant Director; Scheme Operations
Mr Alfred LEE: Administrative Officer; Scheme Operations (2)

Clerk in attendance:

Miss Polly YEUNG: Chief Assistant Secretary (1)3

Staff in attendance :

Mr LEE Yu-sang: Senior Assistant Legal Adviser
Ms Bernice WONG: Assistant Legal Adviser 1
Miss Anita HO: Assistant Legal Adviser 2
Mr Daniel HUI: Senior Assistant Secretary (1)5

I.Meeting with the Administration

Default Contribution: Mechanism for Recovery
(PLC Paper No. CB(1)481(01))

In response to members' enquiry on the timing of imposing penalty interest, the Assistant Director/Scheme Operations (AD/SO) clarified that trustees would be responsible for issuing reminders to employers defaulting contributions, allowing them 30 days to pay the default contributions without penalty. If the default contributions remained unpaid 30 days after the issue of the reminder, the Mandatory Provident Fund Schemes Authority (MPFA) would issue a notice demanding payment of the unpaid contributions and a financial penalty. Penalty interest would also be imposed on the employer. On the method of calculating the penalty interest, AD/SO advised that a level penalty interest (e.g. $20 per employee in the first notice and $30 per employee in the final notice) was proposed in order to save the administrative costs on detailed calculation of penalty interest for individual employees. She also confirmed that the penalty interests received would be credited to the scheme members in respect of whom the employer had defaulted contributions.

2. As regards a member's concerns on whether the penalty interest should be capped at 15% per annum for prolonged default payment and whether the manner of imposing the penalty interest in phases should be prescribed by law, the Chairman suggested that the issue be further considered when scrutinizing the subsidiary legislation. Members agreed.

Self-employed Persons - Calculation of Income, Compliance and Enforcement
(PLC Paper No. CB(1)481(02))

3. Responding to members' enquiry on the method of calculating income for self-employed persons for the purpose of determining MPF contributions, AD/SO explained that the assessable profits as calculated in the Notice of Assessment (NoA) issued by the Inland Revenue Department (IRD) would be regarded as the " relevant income " of a self-employed person who received an NoA. Under the proposed arrangement, it would not be necessary for self-employed persons to calculate their " relevant income " separately for MPF contributions. To further simplify the system and encourage participation of self-employed persons in the MPF system, a self-employed person choosing to make the maximum mandatory contribution of $1,000 per month or $12,000 per year would not be required to show any proof of income. In reply to the Chairman, AD/SO informed members' that there were about 250,000 self-employed persons in Hong Kong.

4. Addressing a member's concern about possible action by the IRD in assessing the profits tax of a self-employed person who opted to make the maximum MPF contributions of $1,000 although his assessable profits fell short of $20,000, AD/SO explained that since these self-employed persons would not be required to submit income evidence, there should not be any concern about tax investigation.

5.For the purpose of elucidation, AD/SO said that a self-employed person making a loss might apply to the trustee not to make contributions until he began to make profits again. At members' request, she undertook to obtain from the IRD the number of self-employed persons who had reported a loss in the past five years. (Post-meeting note: The relevant information has been circulated to members vide PLC Paper No. CB(1)568 dated 29 November 1997).

MPFO

6. On whether hawkers were exempted from MPF coverage, AD/SO confirmed that hawkers were exempted by virtue of Schedule 1 of the principal ordinance.

Circumstances and Fees for Portability
(PLC Paper No. CB(1)481(03))

7. Some members enquired about the proposed off-setting arrangements of severance payment and long service payment against the employer-funded portion of accrued benefits. AD/SO explained that the proposed arrangements were adopted from the Employment Ordinance. She added that this point had been discussed at length when the principal ordinance was passed in 1995. However, pending further review and advice by the Labour Advisory Board, the Administration considered it more appropriate to retain these arrangements.

8. On the trustee's responsibility regarding safe-keeping of records, AD/SO made the following points :-

the MPFA placed a heavy responsibility on trustees in keeping full transaction records of scheme members as such data would be required for verifying scheme assets and benefits of scheme members. Breach of this duty would result in disciplinary action on the trustee and even revocation of the approval of the trustee in serious cases;
if a scheme member transferred his accrued benefits to a new trustee, the current trustee would be required to maintain the scheme member's records for seven years. The MPFA would issue guidelines on the records to be kept;
when a trustee wished to resign, it had to notify the MPFA and make the necessary arrangements for a replacement trustee. Subject to the approval of MPFA, the replacement trustee would take over scheme management and all scheme records; and
where the MPFA suspended or terminated a trustee from the administration of an MPF scheme, the MPFA would, as soon as possible, appoint a replacement trustee who would take over the scheme management and records.

Accounting and Reporting Requirements
(PLC Paper No. CB(1)481(04))

9. The Deputy Chairman reiterated his suggestion that the audited accounts should be submitted to the MPFA within three months, instead of the proposed six months, after the end of the financial year. AD/SO nevertheless explained that a six-month period was considered appropriate since the requisite reports would contain a lot of detailed information and it would be necessary to allow sufficient time for the auditor to perform the audit. She pointed out that the proposed submission period, which had been set with reference to a similar requirement under the ORSO, was in fact more stringent since no extension would be allowed.

10. On the availability of information to schemes members, AD/SO said that MPF trustees would be required to provide an annual benefit statement to each scheme member, showing essential information of a scheme member's benefits such as the amount of contributions made, administration costs deducted, as well as his accrued benefits at the beginning and end of the reporting period. In this connection, she also highlighted the need to strike a balance between making available necessary information to scheme members and maintaining administrative fees at a reasonable level.

11. As regards details to be disclosed in the scheme's annual report, AD/SO said that the requirements would be specified in subsidiary legislation and would be in line with the guidelines issued by the Hong Kong Society of Accountants on best industry practice.

12. Elaborating on the qualifications and role of the external auditors responsible for auditing the annual account and the report on internal controls of MPF Schemes, AD/SO said that Part VII of the MPF Schemes (General) Regulation would specify the requisite qualifications for external auditors.

13. Regarding members' concern on whether external auditors would be relied on solely to fulfill the whistle-blowing responsibility, AD/SO stressed that other service providers would also be under a general duty to report irregularities and non-compliance to the MPFA. To facilitate implementation, the MPFA would specify in the subsidiary legislation matters on which " whistle-blowing " by service providers would be required.

14.A member referred to a report of the Hong Kong Social Security Society which cited several incidents of fraud in fund management. In reply, D/MPFO clarified that the cases depicted in the report related to investment funds and not retirement funds which were subject to stringent regulation and monitoring. She added that the Administration had explained to the Society on several occasions the points it had raised and had also written to the former Subcommittee on MPF system on the Society's allegations. The Chairman advised that the Administration's written response be re-circulated for members' information. (Post-meeting note: The relevant information has been circulated to members vide PLC Paper No. CB(1)511 dated 18 November 1997.)

II.Any other business

15.The Chairman reminded members that the next meeting of the Subcommittee would be held on 18 November 1997 at 2:30 p.m. in the Legislative Council Chamber.

16. The meeting ended at 10:30 a.m.

Provisional Legislative Council Secretariat
28 November 1997