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Scrap the MPF

18 February, 1997

PRESS RELEASE

SCRAP THE MPF

The Hong Kong Democratic Foundation today urged legislators to vote against the Mandatory Provident Fund Scheme.

On Friday 21 February, legislators will vote on whether to grant the Government HK$25 million to fund the MPF office. The Foundation believes that the MPF is wrong for Hong Kong and that legislators should reject the request.

"It is the wrong idea, introduced for the wrong reasons at the wrong time," said Foundation Chairman, Dr Patrick Shiu. "We should just scrap it."

The Foundation gave six reasons why the MPF should be terminated.

• Firstly, the people of Hong Kong do not want it. Only 18% of workers support the MPF, as compared with almost 60% who supported the Government’s original proposal for an old age pension.
  
  
• Secondly, workers in the MPF scheme will not start to accumulate significant balances until twenty years or more have passed. There is not point in rushing legislation through for something that will no really take effect until a generation has passed.
  
  
• Thirdly, even those workers who retire twenty or thirty years later under the scheme will not necessarily be protected. Most of them will receive a lump sum representing their accumulated contributions, and will have to manage it themselves thereafter. Some may not be able to do this, or may live longer than expected and use up their lump sum.
  
  
• Fourthly, it will be impractical to administer the scheme for lower paid workers who move frequently from one employer to another. Either the administrative costs will be so great as to swallow up the contributions, or these people will drop out of the system altogether.
  
  
• Fifthly, the introduction of the MPF may actually discourage employers from running their existing schemes. There are some 17,000 existing schemes registered under the Occupational Retirement Schemes Ordinance, which provide benefits for 800,000 workers that are in many cases superior to these envisaged under the MPF. The requirement to run MPF schemes may discourage employers from providing their existing schemes.
  
  
• Sixthly, the risk of error or fraud on the part of the various managers and trustees that will be involved in managing the typical worker’s contributions as he moves from job to job over a working lifetime will be unacceptable high. It is quite wrong for the Government to force such a scheme on the workforce without any adequate provision to safeguard the worker’s money.

The Foundation is also concerned that a major aim of the Government in establishing the MPF is to promote the development of the financial sector in Hong Kong. The MPF scheme is being established by the Financial Services Branch, rather than the Education and Manpower Branch. Also, the advisers the Government has retained are almost all financial services professionals not workers or their representatives.

"The only people who will really benefit from the MPF are the fund managers and advisers," said Dr Shiu. "No one has really thought about the workers or tried to convince them."

The Foundation also sees a sinister restriction of economic freedom in the MPF proposals. MPF monies will only be investible in specified instruments and there will be limits on the amounts that may be invested in foreign currencies. The use of offshore trusts may be discouraged. Employees and employers will be constrained in the arrangements they make for retirement. With the impending transfer of sovereignty, this is not the time for Hong Kong to be restricting its economic freedom.

The Foundation believes that the Government should review again the idea of a universal old age pension, which would be effective immediately, and could easily be afforded. Otherwise, the current voluntary system of retirement provision under the ORSO regulations should continue.