MR CHAN KIN-POR (in Cantonese): Chairman, the proposal to allow employees to withdraw the accrued benefits of their Mandatory Provident Funds (MPF) in instalments actually aims to avoid the current situation marked by either a full withdrawal or non-withdrawal of accrued benefits by scheme members.
The purpose of this proposal is to give scheme members more choices. When the prevailing investment environment is in poor shape, and if it so happens that they are in need of money, they can withdraw part of their accrued benefits first and wait until the investment environment improves before withdrawing the remaining accrued benefits. This proposal aims to give scheme members more choices so that they may withdraw their accrued benefits at an appropriate time. It does not aim to let them withdraw their accrued benefits whenever they need to, like withdrawing money from an automatic teller machine (ATM) as mentioned by some Members.
Mr LEE Cheuk-yan said a moment ago ― unfortunately, I must tell him the reality ― that elderly people preferred regularity. The reality is that the withdrawal of accrued benefits is not as simple as withdrawing money from an ATM or at a bank’s counter where one needs only to fill in a form. First, a scheme member must fill in an application form. If his application is approved, he will have to sell his fund units. After his fund units have been converted into cash value, he will be issued a cheque. He can receive the money only after the completion of this process probably spanning one or two weeks. Is it our intention to torment elderly people by requiring them to fill in application forms and undergo this procedure every month?
Members must come to think about this. If the procedure is really as simple as what Mr LEE Cheuk-yan described just now, he may really deserve our support. But the reality is that it is not that simple. Therefore, I hope Members … Mr LEE Cheuk-yan can actually call on Members himself not to give him any support, as the reality is not the same as his depiction. This is about how elderly people will be tormented.
Members must likewise consider other aspects. At present, a scheme member can only withdraw his accrued benefits once every year ― it should be “once in his lifetime”. He can do so when he retires at the age of 65. At that time, he can opt for the withdrawal or otherwise of his accrued benefits. If he decides to withdraw his accrued benefits, he will need to fill in an application form indicating the fund units he intends to sell. And, after the fund units have been converted into cash value, he will be issued a cheque. He may collect the cheque in person, or have the money deposited into his designated bank account. He must undergo this procedure.
What will happen if Members do not support the Government’s amendment proposal and instead insist on adopting the original arrangement of 12 times of withdrawal? A scheme member can withdraw his accrued benefits 12 times in a year. Presuming that the average life expectancy of Hong Kong people is 80 years, a scheme member retiring at the age of 65 will still have 15 years to go before reaching 80 years old. The multiplication of the two figures will give us 180, meaning that he can withdraw his accrued benefits 180 times. In that way, the number of withdrawals available to a scheme member within his lifetime will increase substantially from one to 180. Everybody can be sure that the costs will likewise increase substantially.
On the one hand, we have been criticizing the MPF for its exorbitant administrative fees and demanding costs reduction. On the other hand, while we are well aware during the legislative process that more flexibility will mean higher costs, we still insist on enhancing flexibility all the same. In that case, are we actually intensifying the problem despite our good intention? Will this do any good to the system? Therefore, I hope that before making their decisions, Members can consider carefully whether they really want to take the risk of substantially increasing administrative costs. In case the overall administrative costs have increased, it will be difficult to reduce them afterwards. If this really happens, I wonder if elderly people and scheme members will benefit or suffer.
I have the deepest feeling about one thing. At a meeting of the Bills Committee on Mandatory Provident Fund Schemes (Amendment) Bill 2014 (the Bills Committee), Mr LEE Cheuk-yan ― his attendance at the Bills Committee’s meetings was not high ― raised his doubt directly, saying that the Government’s proposal of allowing a scheme member to withdraw his accrued benefits 12 times a year would likewise lead to the shifting of additional costs to MPF schemes, which would eventually drive up the overall costs. I believe the Government has put forth this amendment proposal in the belief that he supports amending the number of withdrawals to four times.
In fact, when the Government first put forward this amendment proposal, no member of the Bills Committee raised any opposition. Many members attending the relevant meeting came from the pan-democratic camp, and there were also members representing other interests. At that time, no member raised any objection except some members who asked whether the authorities had conducted any statistical analysis, and why they made the amendment so casually. At that time, no member raised any opposition, and in fact, no amendment was proposed by any member either. Therefore, I am really shocked by the Member who has just risen to request independent voting on the amendment concerned and raise his opposition at this moment. And I do not think this is advisable either. Why? The reason is that I do not have any opportunity to give detailed explanations to Members from the pan-democratic camp on the underlying rationale. In fact, the industry is well aware that the Government’s amendment proposal will really increase the costs, and the additional costs will inevitably be shifted to scheme members at the end of the day. Besides, I do not think that many people will make use of this arrangement, nor do I consider the arrangement necessary. But I must point out that if this arrangement is really implemented, this possibility will arise, and the Government will be unable to stay focused.
Moreover, the Government could have proposed setting a minimum withdrawal amount because theoretically, a scheme member can withdraw $1 or $2 of his accrued benefits. But after the Government proposed to reduce the number of withdrawals from 12 to four, members thought that a minimum withdrawal amount would not be necessary any more. I would say the arrangement proposed by the Member now will really cause problems to the entire system.
I have talked about all this out of my sincere concern about the good of the system rather than that of the operators. The legislative measure proposed by the Government actually aims to streamline the system and to avoid any costs increases. Its intention is to do good to elderly people. We do not want to torment them, still less do we want to disseminate the erroneous message to them that the withdrawal of accrued benefits is as simple as withdrawing money at an ATM. The withdrawal of accrued benefits is not that simple, as it requires the completion of an application form, the granting of approval, the verification of particulars, and also the conversion of fund units into cash. Moreover, certain risks are also involved. As conversion will be conducted every month, there are bound to be errors in the process, and such errors will cause financial loss. In addition, will flexibility drastically enhance in tandem with the definite increases in costs? I believe the answer is in the negative.
I hope Members can give prudent thoughts to the matter before making their decisions. Thank you, Chairman.
MR CHAN KIN-POR (in Cantonese): Chairman, I thank Mr SIN Chung-kai for telling me that I do not have to worry. But then, I am surprised to hear him insisting on having the 12 withdrawals arrangement after opining that “four withdrawals are more than enough”. I cannot follow his logic.
Besides, Mr SIN Chung-kai has also mentioned about the core fund and remarked that the various fees charged by the core fund should not be more than 1%. In this connection, I wonder if Mr SIN Chung-kai is aware there are dozens of funds the fees of which are less than 1%. We having dozens of funds pitching their fees at less than 1%, but people do not choose such funds. Why is that so? This is because people focus their attention on the returns, as the rate of return is the most important consideration. What is the problem with the high administrative costs? The most important point is the positive returns of the funds. Hence, I hope he will figure out these facts before arguing with me.
Moreover, I also think they have not figured out this one point. The Government has offered the people two choices. One is reducing the number of withdrawals from 12 times to four times, and the other is specifying a minimum withdrawal amount. What is the ground on which the Government has based in persuading the fund investment and fund administration trades to give way? This is what the Government said to us: “As the authorities have reduced the number of withdrawal from 12 times to four times in respond to your request, you should not insist on specifying a minimum withdrawal amount.” This is the Government’s rationale, and people have accepted the reduction from 12 times to four times. But then, all of a sudden, Mr SIN Chung-kai says he opposes this arrangement. The biggest trouble is that he has not made clear his point in the Bills Committee. If he had said clearly that he did not agree with the arrangement, I would certainly have mobilized members of the trades to explain the case to the Democratic Party. He should let people have the chance to explain the case if he really wants to understand, but he has never given us any chance to. If any pro-democrat Members indicate their objection, I will certainly mobilize members of the trades to discuss with them.
The funds-related trades have now agreed to give way, even though the relevant proposal is not the best. Nevertheless, as the Government has at least listened to some of our views, the proposal is worthy of our support. I understand that some people consider the pro-democrat Members as the opposition, but I still believe and hold that some of them are rational Members. Nevertheless, their objection to such a reasonable arrangement to help the trades to survive really drives me mad. How do they represent the business sector? What they have said will indeed impair gravely the status of Hong Kong as an asset management centre. It was because the trustees and funds all believed in this point that they had … I have already remarked in the Bills Committee that this arrangement is good enough as everybody is happy with the Government’s proposal and no objection has been raised. As he has said earlier on that there should not be any cause for concern, and that four times should be enough or even more than enough, why must he oppose this arrangement? Hence, I really cannot understand why Mr SIN Chung-kai has to insist on doing such things. If he keeps mentioning my name, I have no choice but to respond to his remarks.
MR CHAN KIN-POR (in Cantonese): Chairman, I will surely arrange a meeting with representatives of trust companies and the fund sector so that an explanation would be made to Mr LEE Cheuk-yan and Mr SIN Chung-kai. They would be in a better position to make an informed decision only when they have grasped the facts. Just now Mr LEE Cheuk-yan said repeatedly that there would not be much left in the investment return of over 3% after deduction of the administrative fee but I would like to call on Mr LEE Cheuk-yan to get the facts straight. The investment return of over 3% is actually the net return after deduction of all costs, that is, the average rate of return after deduction of all costs. This is the point I would like to clarify to him.
What?
CHAIRMAN (in Cantonese): Members should not speak to each other in their seats.
MR CHAN KIN-POR (in Cantonese): It is definitely not 1.5%. If I can provide him with the figures, would he promise to grant me his support?
Besides, if he really cares about the well-being of the elderly, he should never advise them to handle their retirement payments as in the case of annuity. As I have said, fund units have to be sold every time before the accrued benefits under the Scheme can be cashed and withdrawn. However, the ups and downs in an economic cycle are highly unpredictable and in the event of an economic downturn, should they be asked to turn a blind eye to the actual situation and request for withdrawal every month as usual? Should they be asked to fill out 12 request forms, one for each month, in advance regardless of the reality? This might in fact not be in their best interest to do so.
I hope he can understand that the whole thing is not as easy as it seems. There are always Members questioning the reason for not being able to do so but it actually involves a lot of difficulties when the idea is put into practice. Buddy, things are always very much easier said than done. We should appreciate and understand the many difficulties people are facing in implementing the measures proposed and refrain from making random promises, which is very wrong indeed.
Therefore, I will arrange those in the relevant sectors to meet with Members and as a matter of fact, a set of presentation materials has been prepared jointly by me and those in the relevant sectors to explain to the public that the Mandatory Provident Fund Scheme, despite its shortcomings, is not really that bad as suggested by some people. Many people are happy to see that the Government has put in place a certain kind of provident fund scheme, which has already been in operation for over 10 years. I have been told by some retired workers that thanks to the Scheme, they have at least hundreds of thousands dollars at hand, which have earned them some respect from their children. These are the feelings shared by many people in Hong Kong.
It is thus inappropriate to have the Scheme denounced as worthless. A set of presentation materials has been prepared by those in the relevant sectors to explain everything one by one. Although the set of materials is ready for release, we are now in the process of fine-tuning its contents as I would like to include as much information as possible. It is hoped that Members would listen attentively during the presentation to be given later and feel free to raise their questions so that all of their queries would be addressed properly.
Thank you, Chairman.
MR CHAN KIN-POR (in Cantonese): Chairman, may I put forward a request? I truly believe that Mr LEE Cheuk-yan’s elaboration is wrong. The approximate average rate of return for funds under the Mandatory Provident Fund Scheme over a 10-year period is over 3%, while the average inflation rate over the same period is over 1%. He has confused the two and drawn a completely different conclusion. By saying that the average rate of return for funds under the Scheme is over 1% while the average inflation rate is over 3%, he has concluded that the investment return failed to catch up with inflation but this is a misinterpretation of the basic facts. I wonder if it is possible for the Secretary to provide us with the relevant figures in this respect.
MR CHAN KIN-POR (in Cantonese): Chairman, the Secretary has made a clarification and I hope Mr LEE Cheuk-yan can understand that the 10-year average return of MPF actually was some 4% after administrative fees, while the inflation rate during the same period was some 1%. Therefore, the return of MPF was definitely higher than the inflation rate and it is quite a good system.
Moreover, I would like to briefly explain the concept of annuity. Under an annuity system, an insurance company takes a sum of money from its client and, after calculation, inform him the amount he is going to receive on a monthly basis. Policy holders will be spared from the exchange risk involved as it will be borne by the insurance company. I hope he can understand that this is different from the MPF system in which scheme members bear the risks involved in exchange or in fund resale. The two are different and cannot be understood in the same way. I absolutely support the annuity system but different products are meant for different people.
MR CHAN KIN-POR (in Cantonese): Chairman, since investments, especially the MPF investments, involve long-term arrangements, I think we should focus on their performance in the long run rather than over one or two years only. In my view, if we can base on an average figure for the past 10 years, our depiction of the MPF can be more accurate, and our judgment can likewise be fairer.