The Mandatory Provident Fund Schemes (Amendment) Ordinance 2009 was gazetted on 17 July 2009. It is anticipated that the Amendment Ordinance 2009 will come into operation in or around end of 2010. It will give MPF members greater ability in the choice of their MPF scheme provider.
What does the Amendment Ordinance 2009 aim to achieve?
The aim of the Mandatory Provident Fund Schemes (Amendment) Ordinance 2009 (the "Amendment Ordinance 2009") is to enhance the portability of certain MPF benefits.
Under the Amendment Ordinance 2009, a member of an MPF scheme will be able to transfer a certain portion of his MPF benefits from one MPF scheme to another without leaving employment. The portion of the MPF benefits that will be able to be transferred are the accrued benefits arising from (i) the mandatory contributions made by him (but not his employer) in respect of his current employment and (ii) the mandatory contributions made by him and any ex-employer in respect of a former employment.
A member can effect a transfer of type (i) accrued benefits at least once per calendar year but may transfer type (ii) accrued benefits at any time. The accrued benefits so transferred will be held in a "personal account", which is to replace the existing "preserved account".
How will the Amendment Ordinance 2009 affect the current MPF system?
Key points to note in relation to the Amendment Ordinance 2009 are:
- Replacing "preserved accounts" with "personal accounts"
The existing "preserved accounts" will be replaced and redefined as "personal accounts". The functions of a "personal account" will be more extensive than a "preserved account" in that a "personal account" will also hold accrued benefits due to current mandatory contributions.
- Extending the timeframe for effecting an employee member's transfer request
In respect of a transfer request made by an employee member who ceases employment with a participating employer, the timeframe within which the relevant transfer has to be completed will be 30 days after (i) the trustee is notified of the transfer request (the current position) or (ii) the last contribution day in respect of the employment that has ceased, whichever is the later.
- Removing certain transfer restrictions
Certain types of transfers will be allowed even if there are outstanding contributions or contribution surcharges.
- Charging for "necessary transaction costs" for a transfer
It is currently proposed that a trustee may only charge for the "necessary transaction costs" that are incurred or reasonably likely to be incurred by the trustee in selling or purchasing investments to effect a transfer. In addition, such "necessary transaction costs" must be an amount payable to a party other than the trustee.
- Putting in place a register of "personal accounts"
The Mandatory Provident Fund Schemes Authority will establish and maintain a register of members with "personal accounts" to enable certain categories of people, including members and personal representatives of deceased members, to access certain types of information regarding the "personal accounts".
What should an MPF service provider do now?
The changes which the Amendment Ordinance 2009 will introduce will likely require certain system changes on the part of an MPF service provider to enable the proposed transfers.
In addition, the constitutive documents, offering documents and marketing materials of an MPF scheme will likely need to be updated to take into account the changes which the Amendment Ordinance 2009 introduces.
As any changes to these documents and materials will, in most of the cases, require regulatory approvals, although the Amendment Ordinance 2009 will unlikely commence until the end of 2010, an MPF service provider should factor in the time required to obtain the regulatory approvals and look into its MPF scheme's documentation now to see what changes will need to be made.
For inquiries related to this Client Alert, please contact:
Duncan Abate (firstname.lastname@example.org)
Sophia Man (email@example.com)
Gabriel Cheung (firstname.lastname@example.org)