IIQE Paper MPF English Key Study Notes

Pillar Zero: a non-contributory, publicly-financed and managed system that provides a minimal level of protection for retirement;
Pillar One: a mandatory, contributory and publicly-managed system;
Pillar Two: a mandatory, privately-managed, fully-funded contribution system;
Pillar Three: voluntary savings (e.g. personal savings and insurance); and
Pillar Four: informal support (e.g. family support), other formal social programmes.

Pillar Two: a mandatory, privately-managed, fully-funded contribution scheme.

Mandatory participation
Employment-based
Defined contribution
Privately-managed
Fully-funded

MPFA was established in September 1998 to ensure agreements with the MPFSO and to regulate, supervise and monitor the operation of the MPF System.

Mandatory Provident Fund Schemes Authority (“MPFA”)
Securities and Futures Commission (“SFC”)
Insurance Authority (“IA”)
Monetary Authority (“MA”)

Mandatory Provident Fund Schemes Ordinance (“MPFSO”)
Mandatory Provident Fund Schemes (General) Regulation
Mandatory Provident Fund Schemes (Exemption) Regulation
Mandatory Provident Fund Schemes (Fees) Regulation

Code on MPF Investment Funds
Code on Disclosure for MPF Investment Funds

Part I – Guidelines on Licensing
Part II – Guidelines on Reporting Requirements
Part III – Guidelines on Investment
Part IV – Guidelines on Scheme Operations
Part V – Guidelines on ORSO Interface
Part VI – Guidelines on Intermediaries.

It is a fund of “last resort”, planned to be used after utilizing the professional indemnity insurance and after application to the MPFA.

The trustee is the sole person responsible for all scheme administration and management functions. It may envoy its scheme administration and custodial duties to other service providers and, depending on situation, it must appoint an investment manager for the MPF scheme.

Employer Sponsored Scheme
Master Trust Scheme
Industry Scheme

Any person whose income derives from the person’s production of goods or services in Hong Kong, or trade in goods or services in or from Hong Kong.

Self-employed persons are only required to contribute if they are earning $7,100 or more a month or $85,200 or more a year.

A casual employee is required to make mandatory contributions from the first day of employment.

The employee is not required to contribute for the first 30 days of employment.

Minimum relevant income level : $7,100 per month.

Maximum relevant income level : $30,000 per month.

Minimum relevant income level : $280 per day.

Maximum relevant income level : $1,000 per day.

It is the period within which an employer must enroll his/her employees into an MPF scheme.

A contribution period means each period for which the employer pays or should pay relevant income to the employees.

The contribution day is defined as the 10th day after the last day of:

a) a calendar month within which the relevant contribution period ends; or
b) the month during which the permitted period ends, whichever is the later.

The employee’s relevant income.
The amount of contributions paid by the employer and deducted from the employee’s relevant income.
The date on which the contributions were paid to the trustee.

The permitted period is 60 days for self-employed persons.

Contribution account
Personal account

The ECA aims to increase employees’ right to choose MPF trustees/schemes and to encourage employees to actively manage their MPF investment, promoting greater market competition.

A  person who agrees with all requirements on enrollment/participation cannot be refused by the trustee.

Employee’s mandatory contributions attributable to current employment.

All accrued benefits derived from mandatory contributions are exempt from tax.
Employee’s mandatory contributions are tax deductible.
Employer’s contributions are tax deductible.

The scheme member must reach the age of 60
He/she must declare that he/she has ended all employment or self-employment, with no intention of returning again.

Early retirement
Permanent departure from Hong Kong
Death
Total incapacity
Terminal Illness
Small balance

It refers to an account in an MPF scheme which primarily receives the accrued benefits linked to a member’s former employment or self-employment transferred from other MPF account(s).

Local corporate trustee
Offshore (outside Hong Kong) corporate trustee
Individual (natural person) trustee

Capital adequacy and financial soundness
Suitability
Capability
Presence and control

A trustee is the registered owner of the trust assets.

Standard 1 – Compliance Programme to Address Statutory Obligations
Standard 2 – Compliance Policy
Standard 3 – Compliance Resources
Standard 4 – Compliance Training and Communication
Standard 5 – Complaints Handling Procedures
Standard 6 – Compliance Programme Maintenance and Review
Standard 7 – Reporting Mechanism to the Board of Directors including the Independent Director
Standard 8 – Compliance Plan to Address Identified Obligations

MPF Conservative Fund
Guaranteed Fund

The following funds are also usually found in an MPF scheme:
(i) Money Market Fund
(ii) Bond Fund
(iii) Mixed Assets (or Balanced) Fund
(iv) Equity Fund
(v) Index-tracking Fund

Minimum investment period
Limited guaranteed period
Withdrawal
Cancellation or modification of guarantee
Cancellation or modification of guarantee
Reserve charge

Fee Table
On-going Cost Illustrations (“OCI”)
Fund Fact Sheet
Fund Expense Ratio (“FER”)
Annual Benefit Statement (“ABS”)

All fees and charges
What a particular fee is for
The amount of each fee currently charged
By whom each fee is payable

Defined Contribution Schemes
Defined Benefit Schemes

They satisfy the requirements for applying for MPF exemption certificates. They can be either closed or open to new members, and can be ORSO registered schemes or exempt schemes.

MPF Exempted ORSO Scheme with Open Membership
MPF Exempted ORSO Scheme with Closed Membership
“Top-up” ORSO Scheme
“Frozen” ORSO Scheme

It is defined as the lesser of

the member’s benefits resulted and held under the scheme during the time when the exemption certificate applied to the scheme.
1.2 x final average monthly relevant income x years of post-MPF service.

Always a defined contribution scheme.

The ORSO scheme should be closed and all liabilities should be paid out.
All assets should be transferred to the MPF scheme.

Schemes contained in or established by any ordinance other than the ORSO.
Schemes set up by the government outside Hong Kong or its agency not operating for the purpose of gain.
Schemes that satisfy the requirement for ORSO exemption.

Prohibition against carrying on regulated activities
Registration requirements for MPF intermediaries
Regulatory scope of FRs
Conduct requirements for registered intermediaries
Other requirements for registered intermediaries
Supervisory and disciplinary powers
Appeal mechanism for decisions on registration and disciplinary sanctions

Summons or persuades, or attempts to summon or persuade, another person to make a “material decision”.
Provides “regulated advice”.

A registered intermediary; or
A responsible officer of a principal intermediary.

Principal intermediary
Subsidiary intermediary

A corporation which is licensed under the SFO to perform Type 1 or Type 4 regulated activity, or both, within the boundaries of the SFO.

A requirement under section 34ZM; or
A condition to which the approval as such responsible officer is dependent by virtue of section 34X of the MPFSO.

The fee must be paid within 1 month after the first day of the chargeable period.

The person must pay the additional fee of an amount equal to 10% of the annual fee that was unpaid.

The MPFA maintain a public register of all registered MPF intermediaries over the internet.

The applicant is a Type B regulatee.
The applicant is being linked to a principal intermediary.
New applicant should pass the qualifying examination within 1 year before the date of the application.

Acting honestly and fairly, in the best interests of the client, and with integrity.
Disclosure of conflict of interest.
Disclosure of necessary information to the client.
Care, skill and diligence.

A person who applies for registration as an intermediary to perform regulated activities under section 34T(1).

A person who is a Type B regulatee recorded by the MPFA as an intermediary to perform regulated activities for a principal intermediary to which the person is linked.

It prohibits a person from carrying on regulated activities for the person’s business or employment or for reward.

Authorized unit trust
Authorized mutual fund
Insurance policy