November 2021
AAM Magazine
November 2021
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Hong Kong firms may revamp corporate pensions after rule change

Hong Kong city

Hong Kong employers may have to restructure their pension packages after lawmakers amended rules for the HK$332 billion (US$42.4 billion). Occupational Retirement Schemes Ordinance (ORSO), according to some market practitioners.

ORSO, Hong Kong’s second largest retirement plan after the HK$867 billion Mandatory Provident Fund (MPF), is a voluntary scheme launched in 1993.

The Hong Kong Legislative Council on June 17 passed an amendment to the law governing ORSO to improve governance and prevent misuse.

Among other things, employers will now have to submit an annual statement to the Mandatory Provident Fund Schemes Authority (MPFA), supervisor of the ORSO and MPF, to confirm the schemes are genuinely employer-based.

The changes, which became effective on June 26, may increase operating costs for employers and push more companies to combine their retirement plans under the MPF platform, Janet Li, wealth business leader for Asia at Mercer, tells Asia Asset Management (AAM).

She says ORSO had already become less popular since the MPF was introduced in 2000, with many employers closing or reducing the size of the schemes when their senior staff retire or leave the companies.

There were 3,986 ORSO schemes offered by Hong Kong employers as of May 2020, a 42% decline from around 6,880 in 2010, according to figures from the MPFA.

Nevertheless, “it’s encouraging to see many ORSO employers are still very committed to their staff retirement benefits”, Ms. Li says.

Some observers believe the rule change may have been prompted by some companies abusing the ORSO system by registering non-employees and using it for money laundering or investments instead of contributing to staff pensions.

The requirement for employers to verify that ORSO schemes are genuinely employer-based may limit membership to current and former employees and their beneficiaries, and independent contractors.

“The move is sensible. It ensures that the [ORSO] scheme only serves the purpose of providing retirement benefits,” Philip Tso, head of institutional business for Asia Pacific at Allianz Global Investors, tells AAM.