Mandatory Provident Fund Quiz 29

Correct: The Mandatory Provident Fund (MPF) system is designed to align with the second pillar of the World Bank’s retirement protection framework. This pillar is defined as a mandatory, privately-managed, and fully-funded contribution system that is typically employment-based, ensuring that the working population accumulates assets for their own retirement through regular contributions during their employment years.

**Incorrect:** The zero pillar refers to non-contributory, publicly-funded social safety nets that provide basic relief to the elderly regardless of their past employment. The first pillar describes a publicly-managed, mandatory contributory system, often operating on a pay-as-you-go basis. The third pillar consists of voluntary personal savings, such as private investments, insurance policies, or voluntary MPF contributions, which are supplementary to the mandatory requirements.

**Takeaway:** Under the World Bank’s multi-pillar model, the MPF system functions as the second pillar, providing a privately-managed and fully-funded mandatory retirement savings mechanism for Hong Kong’s workforce.

Correct: According to the MPFA Guidelines on Conduct Requirements, intermediaries must disclose the nature of their compensation and specifically state whether the benefits they receive vary depending on the client’s choice of schemes or constituent funds (Statement I). They are also required to provide the latest offering documents to ensure clients can make informed material decisions (Statement II) and must ensure that the principal intermediary retains these disclosure records for a minimum of seven years (Statement IV).

**Incorrect:** Statement III is incorrect because the Guidelines require “like with like” comparisons. When presenting performance, an intermediary must compare a constituent fund with others of the same type and risk level. Comparing an equity fund to a bond fund is considered inappropriate as it does not provide a fair basis for evaluating investment performance or management skill.

**Takeaway:** To ensure investor protection and transparency, MPF intermediaries must provide mandatory documentation, disclose potential conflicts of interest regarding their remuneration, and adhere to strict “like with like” standards when presenting fund performance comparisons. I, II & IV only. Therefore, statements I, II and IV are correct.

Correct: Under the MPF Guidelines on Conduct, the processing of a client’s instruction does not need to be delayed until the post-sale call process is finished. If a client cannot be reached after several attempts, the intermediary is required to send a written document to the client confirming that the necessary disclosures and offering documents were provided. All related records, whether audio or written, must be maintained for a minimum of seven years to ensure regulatory compliance and provide an audit trail for frontline regulators.

**Incorrect:** It is incorrect to state that instructions must be held until the call is completed, as the guidelines explicitly allow processing to proceed. Simply logging attempts to call is not enough; a follow-up document must be sent to the client if they remain unreachable. The suggestion that records only need to be kept for two years is also wrong, as the specific regulatory requirement for these MPF-related records is a seven-year retention period.

**Takeaway:** Registered intermediaries must ensure that post-sale call procedures do not hinder the timely execution of client instructions, while adhering to strict seven-year record-keeping standards and specific follow-up protocols for unreachable clients.

Correct: Relevant income for MPF purposes includes all monetary payments such as wages, salaries, bonuses, and commissions. Tips are considered relevant income if they are collected and distributed by the employer, such as those added to credit card bills or service charges included in the invoice. Additionally, “pickle charges” (fees for appetizers or snacks) that are collected by a restaurant and shared among staff are treated as an implied term of the employment contract and are therefore classified as relevant income. I and II only.

**Incorrect:** Gratuities paid directly by a customer to an employee, such as cash left on a table or handed over personally without employer intervention, are excluded from the definition of relevant income. Furthermore, medical claim reimbursements paid by a third-party insurance company (rather than the employer) are not considered relevant income, as they are payments made pursuant to an insurance contract covering the employee. Non-monetary benefits and payments specifically excluded by law, such as severance or long service payments, also do not count toward relevant income.

**Takeaway:** To determine relevant income, one must distinguish between payments channeled through the employer (which are generally included) and direct payments from third parties or non-monetary benefits (which are generally excluded). I and II only.

Correct: Under the Mandatory Provident Fund Schemes Ordinance, if individuals are appointed as trustees rather than a trust company, there must be at least two such individuals. These trustees are required to be ordinarily resident in Hong Kong and of good reputation. To protect scheme members, they must provide a performance guarantee in the form of an insurance policy or bank guarantee. This guarantee must cover 10% of the net asset value of the scheme, subject to a maximum limit of HK$10 million.

**Incorrect:** It is inaccurate to state that a single individual can serve as a trustee, as the law requires a minimum of two. The residency requirement is specifically “ordinarily resident” rather than “permanent resident” or a fixed seven-year period. Furthermore, the financial security requirement for individual trustees is a performance guarantee based on a percentage of net asset value, not a minimum paid-up capital requirement, which is a standard applicable to corporate trustees. Other percentages or caps, such as 5% or HK$5 million, do not align with the statutory requirements.

**Takeaway:** Individual trustees must meet specific residency and character standards, operate in a group of at least two, and secure a performance guarantee equal to 10% of the scheme’s net asset value (capped at HK$10 million) to ensure accountability.

Correct: According to the Mandatory Provident Fund Schemes Ordinance, an officer or employee of a company who, with intent to defraud, causes or allows the company to provide false or misleading information during an MPFA inspection or investigation commits a serious offence. On conviction on indictment, the maximum penalty for this specific fraudulent conduct is a fine of $1,000,000 and imprisonment for 7 years.

**Incorrect:** A fine of $1,000,000 and 2 years imprisonment is the maximum penalty for providing false or misleading information knowingly or recklessly, but where the specific ‘intent to defraud’ is not the primary basis for that specific penalty tier. A fine of $200,000 and 1 year imprisonment applies to a simple failure to comply with an investigation requirement without the element of fraud. The $10,000,000 figure refers to the maximum pecuniary penalty the MPFA may impose as a disciplinary order, rather than a criminal fine on indictment for this offence.

**Takeaway:** The MPF regulatory framework distinguishes between simple non-compliance and actions involving an intent to defraud; the latter triggers the most severe criminal sanctions, including a potential 7-year prison sentence.

Correct: When a scheme member elects to transfer their accrued benefits, the original trustee must first redeem the existing fund units into cash before sending the proceeds to the new trustee for reinvestment. This process creates a time lag during which the member’s benefits are not invested in any fund. If the market rises during this period, the member faces the risk of ‘selling low and buying high,’ as the redeemed cash will purchase fewer units in the new scheme than if the transfer were instantaneous.

**Incorrect:** MPF regulations do not allow trustees to charge ‘exit penalties’ for transfers, although members might lose specific guaranteed returns if they exit a guaranteed fund without meeting qualifying conditions. The 30-day period mentioned in the regulations is the maximum time allowed for the original trustee to complete the transfer, not a mandatory holding period in escrow. Additionally, MPF funds operate on a forward pricing basis, where the price is determined after the dealing instruction is received, rather than a backward or historical pricing basis.

**Takeaway:** Scheme members should be aware of the ‘out-of-market’ risk during the transfer process, as market fluctuations during the transition period can impact the final amount of units purchased in the new scheme.

Correct: Statements I and II are correct. Under the Mandatory Provident Fund Schemes Ordinance (MPFSO), a “material decision” includes whether or when to make a claim for the payment of accrued benefits; therefore, providing an opinion on this matter constitutes “regulated advice.” Additionally, Section 34M provides specific exceptions to the prohibition of carrying on regulated activities, one of which allows a trust company registered under the Trustee Ordinance (that is not an approved trustee) to give regulated advice if it is wholly incidental to the discharge of its duties.

**Incorrect:** Statement III is incorrect because the exemption for publications under Section 34M(5) specifically excludes those made available on a subscription-only basis; the publication must be generally available to the public. Statement IV is incorrect because the penalty for carrying on regulated activities without registration on summary conviction is a fine of $500,000 and 2 years’ imprisonment; the $5,000,000 fine and 7 years’ imprisonment apply only to convictions on indictment.

**Takeaway:** Intermediaries must distinguish between regulated advice and exempt activities. While professional incidental advice and public media broadcasts are generally exempt, subscription-based materials and primary professional services regarding MPF material decisions (like benefit claims) require proper registration to avoid heavy statutory penalties. Therefore, statements I and II are correct.

Correct: Statements I, II, and III accurately reflect the regulatory requirements for MPF contributions and enrollment for non-casual employees. Statement I correctly identifies the “contribution holiday” for employees, where the contribution period excludes any wage period starting within the first 30 days of employment. Statement II correctly describes the calculation of the contribution day (the 10th day rule), and Statement III correctly identifies the 60-day “permitted period” for an employer to enroll a new staff member into a scheme.

**Incorrect:** Statement IV is incorrect because the Employee Choice Arrangement (ECA) is specifically limited to the transfer of accrued benefits derived from the employee’s own mandatory contributions during their current employment. It does not allow for the transfer of the employer’s portion of mandatory contributions while the employee remains in that same employment.

**Takeaway:** Intermediaries must distinguish between the enrollment deadline (the 60-day permitted period) and the contribution commencement rules, while ensuring clients understand that the ECA only applies to the employee’s portion of mandatory contributions in their current contribution account. Therefore, statements I, II and III are correct.

Correct: Under the Employee Choice Arrangement (ECA), a relevant employee is permitted to transfer the accrued benefits derived from their own mandatory contributions made during their current employment to an MPF personal account of their choice once per calendar year. The employer’s portion of mandatory contributions from the current employment, however, must remain in the scheme selected by the employer until the employee ceases employment.

**Incorrect:** It is incorrect to suggest that employer mandatory contributions from current employment can be transferred under the ECA. It is also incorrect to claim that benefits from former employment are limited to a once-per-year transfer, as these can be moved at any time. Additionally, current employee mandatory contributions are restricted to being transferred into a personal account, whereas benefits from former employment can be moved to either a personal or a contribution account.

**Takeaway:** The ECA enhances employee autonomy by allowing the annual transfer of the employee’s own current mandatory contributions to a personal account, while maintaining the employer’s control over their own contribution portion for the duration of the current employment.

Correct: Relevant income under the MPF System encompasses a wide range of monetary payments made by an employer to an employee in consideration of their employment. This includes basic salary, performance bonuses, and leave pay (such as payment for untaken annual leave). In this scenario, the sum of the basic salary (HK$25,000), the bonus (HK$10,000), and the leave pay (HK$4,000) totals HK$39,000. Statutory long service payments and severance payments are explicitly excluded from the definition of relevant income by the Mandatory Provident Fund Schemes Ordinance.

**Incorrect:** Including the long service payment would result in a total of HK$89,000, which is incorrect because statutory payments under the Employment Ordinance are not subject to MPF contributions. Excluding the leave pay would result in HK$35,000, but leave pay is specifically listed as a component of relevant income. Only considering the basic salary of HK$25,000 is also incorrect, as bonuses and other allowances paid in monetary terms must be included in the calculation.

**Takeaway:** When calculating MPF contributions, employers must include all wages, bonuses, and allowances paid in consideration of employment, but they must specifically exclude statutory severance or long service payments provided under the Employment Ordinance.

Correct: Statements I, II, and IV are correct. Relevant income includes most forms of monetary remuneration such as commissions and bonuses but explicitly excludes statutory severance and long service payments. For regular (non-casual) employees, the permitted period for MPF enrollment is the first 60 days of employment. Furthermore, regular employees are entitled to a “contribution holiday,” meaning they are not required to make employee-tier contributions for any wage period that begins on or before their 30th day of employment.

**Incorrect:** Statement III is incorrect because the contribution day for a regular employee is defined as the 10th day after the last day of the calendar month in which the contribution period ends (or the month the permitted period ends), rather than simply being the 10th day after the end of the specific wage period. This distinction is important for employers who pay wages on dates other than the end of the calendar month.

**Takeaway:** MPF compliance requires a precise understanding of what constitutes relevant income, the 60-day enrollment window for regular staff, and the specific rules governing the timing of contributions and the initial employee contribution holiday. Therefore, statements I, II and IV are correct.

Correct: Under the Mandatory Provident Fund Schemes Ordinance (MPFSO), a “material decision” is broadly defined to encompass key actions taken by scheme members or employers. This includes deciding whether or when to join a specific MPF scheme, determining the amount of voluntary contributions to be paid, deciding on the timing or execution of transferring accrued benefits between schemes or constituent funds, and deciding whether to move benefits from an occupational retirement scheme (ORSO) into an MPF scheme. Therefore, statements I, II, III, and IV are all legally classified as material decisions.

**Incorrect:** Any combination that excludes one or more of these statements is incorrect because the statutory definition of a material decision is comprehensive. It covers the entry into a scheme, the funding of the scheme (both mandatory and voluntary), and the portability of benefits (both within the MPF system and from external occupational schemes). Misidentifying these actions as non-material would result in a failure to comply with the regulatory requirements for carrying on regulated activities.

**Takeaway:** A “material decision” serves as a trigger for what constitutes a regulated activity; intermediaries must be registered and follow conduct guidelines when inviting or advising clients on these specific matters, which include membership, contribution levels, and benefit transfers. Therefore, all of the above statements are correct.

Correct: Statements I and II are accurate because the Mandatory Provident Fund Schemes (Fees) Regulation specifically lists registration fees for both principal and subsidiary intermediaries, as well as the fees for the annual renewal of registration of MPF schemes. Statement III is also correct as Part II of the MPF Guidelines issued by the MPFA is dedicated to Reporting Requirements, which ensures that service providers maintain transparency with the regulator.

**Incorrect:** Statement IV is incorrect because the Fees Regulation is strictly limited to the types and amounts of fees imposed by the MPFA for various applications and registrations. Detailed investment restrictions, such as allowable asset classes and diversification limits, are instead found in the Mandatory Provident Fund Schemes (General) Regulation and the Code on MPF Investment Funds.

**Takeaway:** Candidates must distinguish between the different MPF Regulations; the Fees Regulation handles the costs of regulatory processes, while the General Regulation and various Codes/Guidelines handle the operational and investment standards. Therefore, statements I, II and III are correct.

Correct: According to the Mandatory Provident Fund regulations, if an Approved Pooled Investment Fund (APIF) is structured as an insurance policy, it must be issued by an authorized insurer as a Class G insurance policy. Class G policies are specifically designed for retirement-related benefits and include a guarantee on capital or return. Furthermore, such a policy must be authorized by the Securities and Futures Commission (SFC) as a collective investment scheme under the Securities and Futures Ordinance.

**Incorrect:** Class A insurance policies refer to standard life insurance and do not satisfy the specific regulatory requirements for MPF APIFs, which prioritize retirement-specific guarantees. While the Insurance Authority regulates the insurer, the fund itself must still receive SFC authorization to be offered within the MPF framework. Additionally, all APIFs, regardless of their legal structure, must be governed by Hong Kong law rather than the laws of other jurisdictions.

**Takeaway:** To ensure member protection and transparency, insurance-based APIFs must be Class G policies, be authorized by the SFC, and comply with Hong Kong law.

Correct: The Mandatory Provident Fund (MPF) system is built upon three specific pillars: it is employment-based, meaning it covers the relevant employees and self-employed persons in the workforce; it is fully-funded, as contributions are specifically set aside and invested to meet future retirement needs; and it is privately-managed by approved trustees in the private sector rather than being run by the government. Therefore, the key characteristics are (i), (ii), and (iii) only.

**Incorrect:** The MPF system is a defined contribution (DC) scheme, where the retirement benefit is determined by the total amount of contributions made and the investment returns earned on those contributions. It is not a defined benefit (DB) scheme, which would guarantee a specific payout amount based on a pre-set formula involving factors like final salary and years of service.

**Takeaway:** Understanding that the MPF system is a privately-managed, fully-funded, and employment-based defined contribution system is essential for distinguishing it from other social security or pension models.

Correct: Statements I, II, and IV are accurate reflections of the Mandatory Provident Fund Schemes Ordinance (MPFSO). Regulated advice is defined as giving an opinion on a material decision, which specifically includes the amount of a claim for the payment of accrued benefits (Statement I). Certain professionals, such as solicitors and certified public accountants, are exempt from the prohibition if the advice given is wholly incidental to their professional practice (Statement II). Additionally, the statutory penalties for carrying on regulated activities without registration or exemption include a fine of $500,000 and 2 years’ imprisonment upon summary conviction (Statement IV).

**Incorrect:** Statement III is incorrect because the exemption for providing regulated advice through publications (like newspapers or magazines) specifically excludes those that are made available on a subscription-only basis. To qualify for the exemption, the publication must be generally available to the public.

**Takeaway:** Under the MPF regulatory regime, giving opinions on material decisions regarding the timing or amount of benefit claims is a regulated activity. While certain professionals and public media outlets have specific exemptions, these are strictly defined and do not extend to private or subscription-based advice services. Therefore, statements I, II and IV are correct.

Correct: Statements I, II, III, and IV are all accurate reflections of the Mandatory Provident Fund (MPF) regulatory framework. Statement I refers to the 10% spread of investment limit per issuer. Statement II identifies one of the two primary reasons money may be borrowed (the other being to settle investment acquisitions). Statement III correctly identifies the 30% Hong Kong dollar currency exposure requirement, which ensures a minimum level of local currency stability. Statement IV accurately describes the unique fee restriction for MPF Conservative Funds, where administrative expenses are contingent on the fund’s performance exceeding the prescribed savings rate.

**Incorrect:** None of the statements are incorrect. Each statement precisely follows the General Regulation and MPFA guidelines regarding investment diversification, liquidity management through borrowing, currency hedging/exposure, and the specific fee-charging mechanisms designed to protect members in low-risk funds.

**Takeaway:** MPF constituent funds must adhere to strict investment restrictions, including a 10% cap on single-issuer exposure and a 30% HKD currency requirement, while also following specific fee-charging rules that link administrative costs to performance in the case of MPF Conservative Funds. Therefore, all of the above statements are correct.

Correct: Under the Mandatory Provident Fund Schemes Ordinance, both principal and subsidiary intermediaries are required to notify the MPFA in writing of specific changes, such as changes in address or contact details, within 7 working days of the occurrence. Failure to comply with this notification requirement without a reasonable excuse is a statutory offence that carries a maximum fine of $50,000.

**Incorrect:** Timeframes such as 14 calendar days or one month are incorrect for reporting administrative changes like contact details, as the law specifically mandates 7 working days. Penalties involving a 10% surcharge apply to the late payment of annual fees, not to the failure to report changes in contact information. While the MPFA has the power to suspend registration for various breaches, a $50,000 fine is the specific statutory penalty mentioned for failing to report these changes without a valid excuse.

**Takeaway:** Registered MPF intermediaries must strictly adhere to the 7-working-day notification window for changes in contact details or status to avoid a statutory fine of $50,000.

Correct: According to the MPF Guidelines, when a client chooses a fund with a risk level higher than their assessed risk profile, a post-sale call must be conducted within seven working days. This call must be performed by an authorized person of the principal intermediary who is not the same subsidiary intermediary who conducted the original regulated activity. This ensures an independent verification that the client understands the risk mismatch and confirms the decision was their own.

**Incorrect:** The guidelines explicitly state that the processing of the client’s instruction does not need to wait for the completion of the post-sale call process. If a client cannot be reached by phone after several attempts, the intermediary is not exempt; they must instead send a written document to the client to confirm the fund choice and risk mismatch. Finally, the required retention period for audio records and related documentation is seven years, not three years.

**Takeaway:** To protect clients in risk-mismatch scenarios, the MPF regulatory framework requires an independent post-sale confirmation call (or written follow-up if unreachable) and mandates that these records be kept for seven years.

Correct: Statement I is correct because the Securities and Futures Commission (SFC) is responsible for the authorization of MPF schemes and their constituent funds, which involves vetting the disclosure of information in offering documents and marketing materials. Statement II is correct as the Insurance Authority (IA) is tasked with ensuring that insurance companies providing MPF services maintain sufficient assets to meet their liabilities in accordance with the Insurance Ordinance.

**Incorrect:** Statement III is incorrect because the function of proposing legislative reforms relating to provident fund schemes belongs to the Mandatory Provident Fund Schemes Authority (MPFA), not the Monetary Authority. Statement IV is incorrect because the supervision and investigation of registered MPF intermediaries whose core business is banking are the responsibility of the Monetary Authority (MA), acting as a frontline regulator, rather than the MPFA directly.

**Takeaway:** The MPF regulatory framework in Hong Kong involves a multi-agency approach where the MPFA oversees the overall system, while the SFC, IA, and MA perform specific regulatory and supervisory functions based on the nature of the product or the core business of the intermediary. Therefore, statements I and II are correct.

Correct: Under the Mandatory Provident Fund Schemes Ordinance, the ground of permanent departure for the early withdrawal of accrued benefits is strictly limited to a single use in a scheme member’s lifetime. Once a member has successfully claimed their benefits for this reason, they are legally prohibited from using the same ground for any future early withdrawals, even if they return to Hong Kong, accrue new benefits, and subsequently depart again for a different country.

**Incorrect:** The suggestion that a member can make a second claim by changing their destination country or waiting for a specific number of years is incorrect because the lifetime limit is absolute and does not reset. Other withdrawal grounds, such as a “small balance,” have specific requirements like a $5,000 limit and a 12-month period of inactivity, which are distinct from the permanent departure rules. Additionally, the option to withdraw benefits via instalments is specifically reserved for members reaching the age of 65 or early retirement at age 60, and does not apply to the ground of permanent departure.

**Takeaway:** The permanent departure ground for early MPF withdrawal is a one-time-only provision; any benefits accrued after a member returns to the Hong Kong workforce following a previous permanent departure claim must remain in the MPF system until another valid withdrawal ground is met.

Correct: The Net Asset Value (NAV) per unit is determined by taking the total market value of the fund’s underlying investments plus any cash holdings, and then subtracting all accrued liabilities, such as management and administrative fees. This net amount represents the total pool of assets available to scheme members. Dividing this net figure by the total number of units issued provides the value for a single unit. In this scenario, the calculation is (HKD 850 million + HKD 50 million – HKD 15 million) divided by 20 million units, which equals HKD 44.25.

**Incorrect:** A value of HKD 45.00 is incorrect because it fails to deduct the accrued management and administrative expenses from the total assets. A value of HKD 39.25 is incorrect because it treats the cash holdings as a liability to be subtracted rather than an asset to be added. A value of HKD 45.75 is incorrect because it adds the accrued expenses to the asset total instead of deducting them as liabilities, which misrepresents the fund’s net position.

**Takeaway:** To accurately calculate the NAV per unit of an MPF constituent fund, all accrued expenses and fees must be deducted from the sum of the market value of investments and cash before dividing by the number of units in issue.

Correct: Statements I, II, III, and IV accurately reflect the statutory requirements for registration as a subsidiary intermediary under the Mandatory Provident Fund Schemes Ordinance (MPFSO). An applicant must hold the status of a Type B regulatee (such as a licensed representative or relevant individual) and must not be a Type A regulatee. Furthermore, the application must be supported by a principal intermediary’s application for attachment, the applicant must meet the qualifying examination requirements (or the three-year re-registration exemption), and they must not be currently suspended by their industry regulator.

**Incorrect:** Any combination that excludes one of these components is incorrect because the MPFA requires all these criteria to be met simultaneously. For example, being a Type B regulatee is insufficient if the individual is currently under suspension (Statement IV) or if the application lacks the formal attachment to a principal intermediary (Statement III).

**Takeaway:** To become a registered subsidiary intermediary, an individual must maintain a valid underlying professional status with an industry regulator, satisfy specific competency and disciplinary records, and be formally linked to a registered principal intermediary. Therefore, I, II, III & IV is correct.