Annex A
Mechanism to Chase and Recover
Default Contributions
‧ Where a scheme trustee notes the mandatory contributions (in part or in whole) are not paid within the stipulated time, he is required to send, within 30 days after discovery of the default contributions, a reminder to the default party chasing the arrears.
‧If the default contributions are still unpaid after the lapse of the aforementioned 30 days, the trustee has to report the case to the MPFA within 7 days after the 30-day period.
‧Upon receipt of report of default contributions, the MPFA will issue a notice to the default party to :
- ask for information including the scheme members involved, their relevant income, the default amounts, etc.;
- impose a penalty on the default contributions which may consist of a financial penalty and a penalty interest;
- ask for payment of the arrears and the penalties within a prescribed period; and
- direct the default party to pay the financial penalty to the MPFA direct and the default contributions and penalty interest to the trustee for allocation to the employees concerned.
In addition to the penalties, the MPFA may also seek information from the default party, if necessary :
- contribution and payroll records; and/or
- special payroll audit report.
If the default party does not pay within the prescribed period, the MPFA may issue a final notice to the default party. The contents of the final notice will be similar to the first one except that there will be heavier penalties. Details of the application of the financial penalties and penalty interest are shown in Appendix.
The employer is required to forward to the trustee a remittance statement on a prescribed form, showing the amount of default contributions and penalty interest for each relevant employee.
The purpose of requiring such remittance statement is to facilitate the scheme trustee to credit each employee concerned with the proper amount.
If the default contributions and/or the penalties are not paid within the stipulated time, then the MPFA shall, depending on circumstances, consider prosecution.
Depending on circumstances, the MPFA may also seek recovery of default contributions by civil proceedings in any court. For small amount of arrears not more than $15,000, the MPFA may lodge a claim in the Small Claims Tribunal. For larger amounts, the claim may be pursued in the District Court and the Court of First Instance.
If a trustee notes an employer or self-employed person habitually takes advantages of the 30 days chasing period to defer making contributions, then he has the duty to report such case to the MPFA for consideration of prosecution. Guidance notes to the trustees will be issued by the MPFA in this connection.
Appendix to Annex A
Application of the Financial Penalty and Penalty Interest on Default Contributions
Financial penalty
‧In the first notice issued by the MPFA, the Authority may impose a financial penalty at a sum lower than the maximum prescribed limit.
‧If the default party still fails to pay, the MPFA may, in the final notice, impose a heavier financial penalty which may be the maximum prescribed amount.
Penalty interest
‧We propose to calculate the penalty interest on the basis of a level amount of penalty interest (e.g. $20 per employee in the first notice and $30 per employee in the final notice) and the total number of employees whose contributions have been held up. The penalty interest seeks to cover the whole defaulting period, including the initial 30 day chasing period.
‧This means that all the employees concerned will be compensated the same amount of interest, regardless of the default amount. The reasons are :
- This is easy for calculation, verification and allocation.
- As the amount of interest receivable by employees will not be substantial, it is not cost effective to calculate the penalty interest on a basis which would entail different amounts to be allocated to different members [e.g. At an interest rate of 15% per annum, the interest for the maximum contributions of $2,000 is $25 a month whilst that for the minimum contributions of $400 is $5]. This would require a lot of resources in calculation, verification and allocation.
