Mandatory Provident Fund Schemes (Amendment) (No. 2) Bill 2011

Speech by Hon KP Chan on the Mandatory Provident Fund Schemes (Amendment) (No. 2) Bill 2011 at the Legislative Council Meeting on June 21st, 2012

Compared to retirement schemes elsewhere, the Mandatory Provident Fund in Hong Kong is the most immature with the lowest contribution rate and asset balances. In general, pension systems require at least 30-40 years of operation to reach maturity. It is therefore neither scientific nor rational to compare the administrative cost as a percentage of the asset balances between the MPF and retirement schemes in other countries which asset sizes are ten to dozens times larger than that of the MPF.

As a matter of fact, operating costs of the MPF is a combination of fixed transaction costs and variable costs aligned to the amount of assets under management. Because of the low balances of the MPF, fixed costs translate into a higher percentage fee. With automation and simplification of the administrative procedures, increase in the levels of relevant income, accumulation in the overall balances of the MPF, and free market competitions, fees will reduce over time and approach the level of mature markets which sizes are much larger than Hong Kong.

The issue of aging population in Hong Kong is severe. To meet the retirement needs of our citizens, it is of utmost importance for us to optimize the MPF system, including full portability, increases in both levels of relevant income and contribution rate, as well as incentives in voluntary contributions. The Government should also conduct studies, consultations, and discussions to reach a consensus on a universal retirement protection scheme to complement the MPF.

The Government has agreed to and made corresponding amendments to a number of my proposals in the Bills Committee, which I will spare the details in this speech. I am supportive of the current Bill in the hope of launching the Employee Choice Arrangement as soon as possible.

As for the amendments proposed by Members, the amendment moved by Hon Wong Sing-chi requires the MPFA to give a copy of their preliminary view to the complainant in the event of an investigation. I hope everyone is aware that the notice is only the preliminary view of the MPFA which also serves the purpose of notifying the regulated person his or her right of appeal. The regulated person has the right to file additional appeals and present evidence in relation to the grounds which the MPFA base their views on. It is apparent that the investigation is incomplete at this stage which may render entirely different results depending on the appeal by the regulated person. Therefore, it is neither appropriate nor fair to provide the preliminary view to the complainant prior to the conclusion of the investigation. As such, I cannot support the amendment proposed by Hon Wong Sing-chi. However, I am supportive of making the final results and details of the sanctions available to the complainant after completion of the investigation.

I understand the purpose of the amendment proposed by Hon Kam Nai-wai is to protect investors so that they do not have to pay exorbitant legal fees to the court proceedings. However, I believe it is a major decision on whether or not the Hong Kong regulatory authorities should be empowered to command the regulated person to pay compensation to the investors. At the same time, the amendment will have far-reaching implications on our entire financial regulatory system if damages can be claimed through civil proceedings in court from intermediaries in violation of the requirements and standards under Section IV A. There must be a full consultation so that all stakeholders have the opportunity to express their views and the pros and cons can be thoroughly evaluated before a decision is made. Before there are comprehensive studies on the impact of the amendment by Hon Kam Nai-wai, the amendment cannot be supported.

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