MR CHAN KIN-POR (in Cantonese): In my capacity as Chairman of the Bills Committee on Mandatory Provident Fund Schemes (Amendment) Bill 2014 (Bills Committee), I would like to report on the deliberations of the Bills Committee.
The Mandatory Provident Fund Schemes (Amendment) Bill 2014 (the Bill) seeks to amend the Mandatory Provident Fund Schemes Ordinance to allow withdrawal of Mandatory Provident Fund (MPF) accrued benefits by instalments upon a scheme member’s retirement or early retirement, to add terminal illness as a ground for making early withdrawal of accrued benefits, to improve the information disclosure and prosecution arrangements, and so on. The Bill also proposes to revise the approval process of a new MPF constituent fund and to streamline the administrative and communication procedures, so as to drive down the MPF fees and to enhance the MPF schemes.
The Bills Committee supports the proposal which allows phased withdrawal of MPF accrued benefits, so as to provide scheme members with more flexible options in withdrawing accrued benefits. As MPF trustees’ administrative costs increase with the number of withdrawals, members propose to reduce the number of free withdrawals from at least 12 times a year to no more than four times a year or to set a minimum amount for each withdrawal, so as to maintain the administrative and operational efficiency of the MPF System. Having considered the comments of the Bills Committee, the Administration has agreed to revising the proposal to require MPF trustees to handle a minimum of four free withdrawal requests made by a scheme member in a year while no minimum withdrawal amount will be specified. The authorities have promised a review in future to ascertain whether the new arrangements would satisfy scheme members’ need. Members in general also support the addition of terminal illness as a ground for early withdrawal of accrued benefits. Some members have expressed disagreement to defining terminal illness as a remaining life expectancy of 12 months or less. They hold that certification by a registered medical practitioner or a registered Chinese medicine practitioner that a scheme member suffers from a terminal illness should suffice to justify the early withdrawal. The Administration has indicated that it is necessary to make available an easy-to-understand and objective definition of terminal illness, so as to provide medical practitioners with an objective assessment mechanism, to facilitate easy operation of claim procedures and to help prevent abuse. The authorities have explained that the proposed definition is the outcome of the 2011-2012 public consultation and the subsequent discussion with medical professional bodies, together with the reference made to the arrangement adopted in the Australian Superannuation System.
Moreover, some members have suggested allowing scheme members who are certified to have critical illness to make early withdrawal of accrued benefits, in order to help them pay medical expenses or meet other financial needs. The authorities have advised that critical illness is not necessarily fatal and critically ill scheme members who recover after treatment will still require retirement protection. Allowing early withdrawal of accrued benefits by critically ill scheme members will reduce the amount available for meeting retirement needs in future and this contradicts the policy objective of the MPF System. Hence, the authorities consider it inadvisable to add critical illness as a ground for early withdrawal of accrued benefits.
Members generally support the Bill’s proposal to promote the use of electronic means of communication between trustees and scheme members. But some members are concerned that the full implementation of electronic communication may prejudice scheme members’ right to information. Members consider that scheme members should be allowed to opt for non-electronic means to manage their MPF accounts and suggested the authorities take appropriate measures to prevent trustees from charging scheme members for using paper correspondence.
The authorities have indicated that scheme members may still opt for non-electronic means of communication. Although the Mandatory Provident Fund Schemes Ordinance contains no provisions which prohibit trustees from charging members administrative fees for the use of paper correspondence, none of the current 38 MPF registered schemes impose any charges on scheme members for provision of required documents. Furthermore, all fees have to be specified in the fee table of the offering document.
In order to reduce trustees’ compliance burden, some members urge the Administration to review and simplify the dual approval process which requires new constituent funds to secure approval from both the Mandatory Provident Fund Schemes Authority (MPFA) and the Securities and Futures Commission (SFC), so as to expedite the approval process and reduce trustees’ administrative costs to help drive down MPF fees.
The authorities have explained that these two regulators have clear delineation of work. The MPFA and the SFC are going to hold regular meetings to discuss issues of common interest. The MPFA will also continue to liaise with the sector and review the current arrangement from time to time to ensure an efficient approval process.
The Bills Committee raises no objection to the other proposals in the Bill. Those proposals include clarifying the definition of the terms such as “permanently ceased employment or self-employment” and “departs Hong Kong permanently”, empowering the MPFA to refuse application for a new constituent fund which is not “in scheme members’ interests”, revising the information disclosure arrangements in secrecy provisions, and extending the time limit to institute criminal proceedings under the legislation from six months to three years after the commission of the offence.
In response to members’ request, the Administration and the MPFA have undertaken to step up public education and publicity efforts to help people understand the salient features of the Bill and the new arrangement after the passage of the Bill.
The Bills Committee raises no objection to the Committee stage amendments (CSAs) proposed by the Administration.
Deputy President, below are my comments on the Bill.
I support the Bill and the CSAs moved by the authorities. The most remarkable amendment is on the phased withdrawal of MPF accrued benefits. This proposed amendment allows scheme members to withdraw MPF accrued benefits by instalments upon their retirement or early retirement. Under this amendment, scheme members can withdraw accrued benefits with more flexibility and the amendment helps them formulate retirement plans and perform financial management more effectively.
The original intent of the Bill is to require trustees to process, free-of-charge, at least 12 requests for accrued benefit withdrawal from a scheme member in a year. However, both the sector and the public are concerned that the increased number of withdrawals will directly bring about a rise in administrative costs. Indeed, the processing of each application for benefit withdrawal involves a number of administrative procedures such as the verification of application form, examination of documents, exchange of correspondences, release of cheque, and so on, resulting in high administrative and staff costs. At present, each scheme member can only make one withdrawal after retirement. If the number of free withdrawals is increased to at least 12 times a year, each member can make such a request for as much as 120 times in 10 years and this will certainly drive up the administrative costs.
Therefore, the sector proposes to revise this provision and reduce the number of free withdrawals of incurred benefits from at least 12 times to at least four times a year, so as to maintain the administrative and operational efficiency of the MPF sector. This proposal has gained the Government’s endorsement so that the trustees can reduce the costs that will be incurred in processing the benefit withdrawal requests and help keeping the overall administrative costs under control. At the same time, I believe that with the passage of the Bill, the Government will continue to strive for a balance between enhancing the flexibility of the scheme and controlling its costs.
Furthermore, I also support the other CSAs proposed by the authorities. I hope that with the passage of the Bill, the MPF System in Hong Kong can be further enhanced. Apart from this Bill, I would also like to see the authorities continue strengthening the other measures which bring improvements to the MPF System, such as automation and digitization of administrative procedures, consolidation of schemes and facilitating scheme members’ consolidation of accounts, so as to realize the objectives of driving down the costs and administration fees of the schemes, as well as streamlining the procedures.
With these remarks, I support the Bill and the CSAs proposed by the Administration.
Thank you, Deputy President.