Speech
LC: Reviewing the Mandatory Provident Fund System
Wednesday, 13 June 2001
Madam President,
Introduction
I would like to thank Members for their valuable comments on the Mandatory Provident Fund (“MPF”) System. The MPF Scheme has been implemented for more than half a year. Today's motion debate gives us a good opportunity to share our experience.
Background
The Mandatory Provident Fund Schemes Ordinance (“MPF Ordinance”) was enacted by the then Legislative Council six years ago. The Ordinance and its subsidiary legislation provide for the mode of operation and details of implementation of the MPF in Hong Kong. They also lay down the rights and duties of employers, employees, service-providers as well as the Mandatory Provident Fund Schemes Authority (MPFA) under the MPF System.
The MPF System came into full operation last December. To date, over 85% of employers, 93% of employees and 90% of self-employed persons have enroled in the MPF schemes. Also, over 150000 people have enroled in the industry schemes. The enrolment rate is quite satisfactory, which is comparable to similar schemes in other countries. The effectiveness of any large-scale social programme hinges upon wide public participation. The present enrolment rate of the Scheme reflects the support from all sectors of the community.
Over the years, only about one-third of our labour force were covered by retirement schemes set up voluntarily by their employers. With the implementation of the Scheme, over 3 million of our labour force now enjoy retirement protection. The coverage has improved substantially.
The MPF is a brand new and extensive scheme which affects over 240000 employers, some 2 million employees and self-employed persons, 20 approved trustees and about 30000 registered MPF intermediaries. In view of the far-reaching implications of the Scheme, we must ensure that it operates effectively and that the interests of all relevant parties have been taken into account. As a result, the relevant legislation is inevitably complex. At the initial stage of operation, the relevant parties could not fully understand the details of the System and the legislative requirements, resulting in some technical problems. For instance, there were hiccups in the handling of the large amount of information between the trustees and employers, and in settling contributions. In fact, all parties concerned need time to familiarize with the operation of the System. With the concerted efforts of the industry, employees unions, business associations and the MPFA, and as the relevant parties have become more familiar with the operation of the System, the unsatisfactory situation encountered earlier has now been gradually improved.
Review
Both the motion of Hon CHAN Kwok-keung and the amendment of Hon Bernard CHAN mentioned a review on the MPF System. As I have just pointed out, the MPF legislation sets out the details and requirements of the existing System. We understand that the Ordinance is not perfect and there is room for improvement. Our aim is to accumulate more experience and to ensure the smooth operation of the MPF System which can meet the overall needs of the community. For instance, in the course of preparing for the implementation of the MPF Scheme, we received comments from various parties on the legislative provisions and the detailed operation of the System. We have dealt with those comments seriously. After considering the comments received, we introduced amendments in the Mandatory Provident Fund Schemes (General) (Amendment) Regulation 2000 (enacted last year) and the Mandatory Provident Fund Schemes (Amendment) Bill 2001 (which was read the first and second time three weeks ago). Our aim is to clarify the provisions of the Ordinance to facilitate the operation of the MPF System.
The MPF Ordinance was enacted in 1995. It was amended, with its subsidiary legislation enacted in 1998. Further amendments were introduced last year. The existing legislation reflects the consensus and compromises we have reached on this System of far-reaching impact. Of course, there is always room for improvement in a system and its underlying legislation. We see the need to review the operation of the MPF System and legislation in an appropriate time. As to the timing of the review, I believe that it should be some time after the full implementation of the System, say, a year. This can allow the relevant parties to accumulate sufficient experience to recommend practical improvements.
Regarding the scope of review, I think it should be based on the operation of the MPF Ordinance. We should aim at enhancing the operation of the existing legislation, instead of indulging in issues which have been thoroughly discussed before, or expanding the discussion to other policy areas.
Low-income Earners and the Maximum and Minimum Levels of Income
Hon CHAN Kwok-keung asks for a review on measures to lessen the burden of the MPF contributions on low-income earners. Hon Bernard CHAN puts forward an amendment for setting up a mechanism to review the maximum and minimum levels of income for making mandatory contributions.
I wish to point out that the design of the MPF System has already taken into account the needs of the low-income earners. To avoid causing financial difficulties for low-income earners, the existing legislation stipulates that employees with income of less than $4,000 per month are not required to make mandatory contributions, while their employers' responsibilities to contribute remain unchanged. The Ordinance also provides that the maximum level of income for mandatory contributions is $20,000 per month. The maximum and minimum income levels were unanimously agreed upon by various sectors of the community, including the legislature in 1995. In addition, no objection was raised when the commencement date of the MPF Scheme was considered by the Legislative Council in May last year. When introducing the Mandatory Provident Fund Schemes Bill in 1995, the Government indicated that a mechanism would be set up to adjust the maximum and minimum levels of income for making MPF contributions.
Of course, we will do what we have undertaken to do. We are now considering how to set up a mechanism to adjust the maximum and minimum levels of income in an ordered manner instead of changing the upper and lower limits arbitrarily at any time, causing confusion to employers and employees. We will consider how to set up a mechanism that is acceptable to all in the context of the review of the operation of the MPF Ordinance to be conducted at the end of this year.
As before, we will consult Members on the setting up of the mechanism. Setting up a mechanism of course does not mean that adjustment will be made immediately. What mechanism is appropriate? How long does it take before adjustment should be made? One year, two years or three years? I think all these should be included in the review.
Burden on Employers
I understand that the Ordinance has certain requirements for the relevant parties, including the employers, employees, trustees or even the MPFA. For instance, it provides for the registration, contribution period, contribution statements and the provision of monthly contribution records to the employees. These seemingly complicated requirements, in fact, represent the consensus reached between the employees and employers, the industry and the regulatory authority during the legislative process.
Since the commencement of the System, MPFA has endeavored to help employers and trustees to tackle the technical problems during the initial stage of implementation. It has also widely publicized the administrative arrangement of the Scheme so as to enhance employers’ understanding of their duties.
MPFA also intends to conduct a review on the registration and contribution procedures with the industry, representatives of employers and employees as well as relevant professional bodies within the year, with a view to simplifying the procedures to better suit users' needs.
Industry Schemes and Protection for Industry Members
Some Members have pointed out that there is still room for improvement for the industry schemes. I would like to point out that the present operation mode of the industry schemes is the result of consultation between the employers, employees and industry members. At present, the Mandatory Provident Fund Industry Schemes Committee, comprising representatives of employers and employees as well as other concerned parties, advises the MPFA on the monitoring of the operation of the industry schemes and their development. MPFA will maintain close contact with employers and labour groups and is ready to provide assistance to employers and industry members whenever necessary.
On the enrolment rate of industry schemes, as a number of employees in the catering industry are employed on a monthly basis and the relevant employers have opted for master trust schemes instead of industry schemes, the enrolment rate of the catering industry remains low. For the construction industry, due to the multiple subcontracting system, the lack of a fixed place of employment and the frequent switching of status from employees to self-employed persons by some construction workers, the overall enrolment rate is less than satisfactory.
MPFA will continue to liaise with the various industries and their members in finding ways for improvement. We will also closely monitor the timetable for the implementation of the recommendations of the Construction Industry Review Committee, which involve the setting up of a workers registration system. Such a system will help in improving construction workers’ participation in the MPF Scheme.
Setting up of a Universal Retirement Protection Scheme
Just now, several Members have asked for a review on the setting up of a universal retirement protection scheme. I understand Members’ concern over retirement protection.
The employment-based MPF System was formulated after years of discussion and negotiation with the various parties concerned. In implementing the MPF System, we also have to take care of persons who cannot benefit directly from the MPF System, and are facing financial difficulties. The Government’s policy is to help those in need by providing financial assistance for them to meet basic needs, through the Comprehensive Social Security Assistance Scheme. The Health and Welfare Bureau has also drawn up a comprehensive policy on “Care for the Elderly”, and is actively exploring ways to improve the social security arrangements for the elderly.
The statutory universal retirement protection scheme proposed by Members in fact relates to the social security for the elderly who are not members of the workforce. I hope that Members would agree that this issue should not be discussed under the review of the operation of MPF System, but should be considered at other appropriate policy level. In fact, we have discussed over the issue many times before and I am sure we all understand the standpoints of each other.
Plugging Loopholes in the Legislation and Resolving Labour-related Disputes
Members have offered a lot of valuable comments on certain loopholes in the MPF legislation. I agree that some labour disputes would be unavoidable upon the implementation of the MPF System. MPFA and the Labour Department have maintained close contact, and put in place a complaint referral and mediation mechanism to handle the labour disputes effectively in accordance with the Employment Ordinance and the Mandatory Provident Fund Schemes Ordinance.
On labour disputes and complaints arising from the implementation of the MPF System, which are related to the Employment Ordinance, the Labour Department will start investigation and provide mediation services to assist employers and employees to settle disputes related to the Employment Ordinance or caused by the alternation of terms and conditions of employment.
Some Members have mentioned the cases of employers changing the status of their employees unilaterally to self-employed. In fact, under common law, such an arrangement can be deemed a de facto dismissal and the employee has the right to claim compensation for the dismissal. Even if the status is changed with the employee’s consent, if there is no material change to the employer-employee relationship, the court can still rule that the employer has to comply with the Employment Ordinance and the Employees’ Compensation Ordinance.
Madam President, MPFA will continue its efforts in public education and enforcement, to remind employers of the consequences of violating the MPF Ordinance. On the enforcement front, an employer who failed to enroll his employees in MPF schemes was convicted in May this year. This precedent is expected to serve as a deterrent to other employers. The resolution of labour disputes hinges on the attitudes of both the employers and the employees. I hope that MPFA, the Labour Department, employers and employees will continue to work together in future towards the smooth operation of the MPF System.
Let me respond to the views of some Members. Hon CHAN Kam-lam mentioned the less than satisfactory investment returns of some MPF schemes recently. I wish to point out that MPF is a long-term investment and we should not assess its long-term performance by short-term returns. I believe the return rate over a mere few months is insignificant. In fact, statistics show that the average rate of return of retirement funds in Hong Kong over the past 18 years stands at 13%, which is higher than the 6.4% inflation and the about 10% pay increase. Therefore, based on the past experience, the returns of similar MPF funds should have steady growth. Otherwise, there would not be so many people investing in funds on their own.
As to the offsetting of MPF benefits, I originally did not intend to mention the issue. But I know that Members are all aware of the background and debates over the topic which was thoroughly discussed when passing the MPF Ordinance and its subsidiary legislation in 1995 and 1998. We are well aware of the very different viewpoints held by employers and trade unions on the subject. The arrangement provided under the existing legislation essentially reflects the agreement reached after prolonged discussion. It is unlikely to arrive at any conclusion in today's debate, and the discussion on the issue will continue. Therefore I do not intend to elaborate on the subject. It’s a pity that the Hon LEE Cheuk-yan is not in right now. A moment before, he shared with us his idea of the Chinese character “gold”. Actually when we talk about gold, we are thinking of the fact that MrRafael HUI and his colleagues at MPFA will keep their eyes "as bright as gold" in monitoring the operation of the MPF System to ensure that MPF scheme members will, when they retire, secure the fruit of protection "as concrete as gold" after years of hard work. That’s what we mean by “gold”.
Finally, I would like to stress that the mode of operation of the MPF System and the relevant legislation represent the consensus reached among Members and the community after years of detailed discussion and careful consideration. The System may not be able to satisfy the demands of all parties concerned. However, it has balanced the interests of employers, employees and service providers and is accepted as the retirement system that best suits Hong Kong’s needs. Therefore, our most important task now is to make sure that the System and the relevant legislation operate effectively, and fulfill the three major principles: (i) the System is simple and easy to understand; (ii) its operation is cost-effective; and (iii) it is secure and provides reasonable protection for members' interests.
Madam President, I would like to thank once again for Members’ valuable comments on the review of the operation of the MPF System. The Government and MPFA will consider the views of all parties concerned and seek further improvement to the MPF System, through the review to be conducted at the end of this year, on the basis of the three major principles mentioned above.
During the debate, Hon LAU Chin-shek compared the MPF System to a leaky umbrella. What I would like to say is that this umbrella can be fixed. When you retire, you may find that the weather could be as stormy as what you can experience if you go out now. I think it would make a big difference if you have an umbrella with you.
Thank you.