HONG KONG GOVERNMENT’S ABRUPT U-TURN ON HK$6,000 MPF INJECTION

Financial Secretary John Tsang on 2nd March 2011 scrapped an unpopular proposal to inject HK$6,000 into every MPF account to alleviate the citizen’s financial stress amid inflationary pressure. The proposal, totaling HK$24 billion, was being criticized for not being able to serve as an immediate relief, since cashing out of MPF is only possible at the age of 65, and for ignoring those who do not have an MPF account, including housewives, retirees, and civil servants.

Instead, every permanent resident aged over 18 will now receive handouts of the same amount in a spending spree costing the government upwards to HK$37 billion. The revised measure was more popular than an MPF injection, as confirmed in various opinion polls.

MPFA REVIEWING MINIMUM AND MAXIMUM RELEVANT INCOME

The MPFA issued a media release announcing that they are reviewing whether to raise the maximum relevant income level for MPF contributions from HK$20,000 to HK$30,000. As a result, the maximum monthly MPF contributions received from employees and employers respectively will increase from HK$1,000 to HK$1,500. Increasing the minimum threshold will be considered under the review, suggesting that those who earn more than HK$5,500 (currently HK$5,000) have to make MPF contributions. When these new thresholds will come into effect is subject to the Government’s decision in consultation with legislators.

MEMBER CHOICE PUSHED BACK TO JULY 2012

Employees will finally be allowed to choose their own pension providers from July next year under new regulatory details governing Mandatory Provident Fund salespeople announced Monday.

The government announced details of the law change that will be subject to a one-month consultation before being sent to lawmakers. If passed, employees would get to choose their providers from next July, said Au King-chi, permanent secretary for financial services and the treasury, reports the South China Morning Post.

“At present, about 250,000 employers choose the MPF providers and salespeople seldom lure them to shift. If we allow the 2.3 million employees to make their own choices, MPF salespeople may get more aggressive,” Au said “We need the legislation to regulate and penalize salespeople who mislead customers.”
The proposed law requires all the existing 28,365 MPF salespeople and any new entrants to register with the Mandatory Provident Funds Scheme Authority.

MPF salespeople are bankers, fund managers or insurance agents, and are licensed by their respective regulators – the Hong Kong Monetary Authority for banks, the Office of the Commissioner of Insurance for insurers while it is the Securities and Futures Commission for fund managers and brokers.

MEMBER CHOICE HAS BEEN RENAMED AS “EMPLOYEE CHOICE ARRANGEMENT (ECA)”

The Hong Kong government plans to enhance regulation of MPF intermediaries before the Employee Choice Arrangement (ECA) comes into force.

The Financial Services and the Treasury Bureau submitted a paper to the Legislative Council on the legislative proposals to enhance the regulation of the sales and marketing activities of MPF intermediaries.
The legislation will include banning all but registered MPF intermediaries from engaging in regulated MPF sales and marketing activities, while also setting up a registration regime for MPF intermediaries. Also, power will be given to related regulators in enforcing conduct requirements on MPF intermediaries. The paper proposed a two-year transitional period should be given for pre-existing MPF intermediaries.

A spokesman for the Financial Services and the Treasury Bureau said: “Subject to the views of the Legislative Council and public, we aim to introduce a Bill into the Legislative Council this year, with a view to completing the legislative amendments in mid-2012 such that the ECA can be implemented on the basis of a strengthened regime to regulate the sale and marketing of MPF products for better protection of scheme members’ interests.”

“This approach will minimize disruption to the existing regulatory arrangements and facilitate early implementation of the ECA,” the spokesman added.

POSSIBLE REDUCTION OF MANAGEMENT FEES AGAINST “EMPLOYEE CHOICE ARRANGEMENT” IN 2012

‘Employee Choice Arrangement’ would increase competition among service providers, leading to a reduction of the management fees. Market experts forecast around 60% of the total MPF assets (over HK$200bn) could be freely transferred from one MPF provider to another MPF provider once the member choice launches next year.

HONG KONG’S MPF FUND RETURNS RISE IN Q1

Hong Kong’s MPF market showed a positive return at the end of the first quarter (Q1) 2011, with funds growing 1.19% on average, according to the latest data from Lipper.

The funds grew 0.51% in March from 0.05% posted in February, though this was slightly lower than the gain seen in January of 0.63%. Equity MPFs outperformed all other asset classes in Q1, rising 1.71%, while mixed assets MPFs came in second place rising 1.17%. Bond MPFs also showed an increase of 0.89% in Q1 2011.

Among equity MPFs, pharmaceutical & health sector outperformed other categories rising 6.84% in Q1, while North America equity also saw strong growth of 5.55% and Europe equity also rose 5.42%.
Meanwhile, Korea equity MPFs rebounded strongly from -6.18% in February to a gain of 9% in March, ending Q1 for an accumulated performance of 3.02%. China equity MPFs also rose 2.61% in Q1, with Hong Kong’s equity MPFs also slightly rising 0.47%. But the Greater China equity posted a negative return of 1.32%.

In addition, Japanese equity MPFs performed the worst in Q1 by falling 3.83% as a significant drop of 9.3% during March has outweighed the gains received in the first two months of 2011.