MPFA finally rolls out Employee Choice Arrangement
01 November 2012
News, Hong Kong
By Asia Asset Management
The Employee Choice Arrangement (ECA) was launched today (November 1), providing 2.35 million employees with the option of transferring the employee’s portion of their mandatory contributions and investment returns (that is, the accrued benefits) in their contribution account to an MPF trustee and scheme of their own choice on a lump-sum basis once a year. Employees may also opt to make no change by retaining their accrued benefits in their original scheme.
The Mandatory Provident Fund Schemes Authority (MPFA) has introduced ECA to give employees greater autonomy in the selection of MPF trustees and schemes, with the aim of encouraging them to actively manage their MPF investment. The MPFA also hopes that with the implementation of the new arrangement, MPF market competition will become keener, creating room for further fee reductions. With ECA, the amount of transferable MPF assets will increase from around 41% to more than 67% of total MPF assets, or from HK$157.6 billion (US$20.33 billion) to $257.5 billion, an increase of about $100 billion.
The MPFA reminds scheme members that although ECA gives them the right to transfer their accrued benefits, they are not obliged to make a transfer, nor do they have to make a transfer immediately after the launch. When deciding whether to do so, scheme members are advised to consider the products (MPF schemes and funds) and services provided by trustees, along with the fund fees and their personal factors. They should also pay attention to the potential risks involved in such transfers.
Benefit transfers involve moving assets from one trustee to another and involve a number of steps, which include, amongst others, verification of scheme members' information by both old and new trustees, selling and purchasing funds, and issuing and cashing cheques. The whole transfer process generally takes six to eight weeks to complete. Scheme members should note that after the old trustee has redeemed the funds and before the new trustee purchases new ones, scheme members’ MPF investments will be out of the market for about one to two weeks. During this period, the market may fluctuate and scheme members may as a result “sell low and buy high”.
In addition to ECA, a statutory regime for MPF intermediaries also came into effect today. In a bid to further strengthen protection of scheme members’ interests and minimise the risks of mis-selling, all companies or individuals, except as specified in the legislation, will have to be registered as MPF intermediaries before they can engage in the sale or marketing of MPF schemes or other regulated activities. It will be an offence for anyone who is not a registered MPF intermediary to engage in such regulated activities. The maximum penalty is a $5 million fine and seven years’ imprisonment. Registered intermediaries are required to comply with the statutory conduct requirements. The MPFA may make disciplinary orders against intermediaries found to be not in compliance with the statutory requirements.
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