Mandatory Provident Fund Schemes Authority Annual Report 2011/12

Transcription

1 Mandatory Provident Fund Schemes Authority Annual Report 2011/12

2 ContentS 01 MPFA at a Glance 02 Statistical Highlights 03 Major Results and Future Initiatives 08 Chairman s Statement 12 Managing Director s Report 16 The Management Board 22 MPF Schemes Advisory Committee 24 MPF Industry Schemes Committee 26 The Management Team 27 The Organization Structure Business Operations 29 Refining the Regulatory Framework 35 Protecting the Interests of Scheme Members 40 Supervising the Industry 47 Educating the Public and Reaching out to the Community 53 Preparing for the Implementation of the Employee Choice Arrangement 56 International Exchanges Corporate Governance and Social Responsibility 59 Corporate Governance 68 Corporate Social Responsibility Financial Statements, Statistics, Appendices 75 Financial Statements MPFA 98 Financial Statements Compensation Fund 111 Statistics 128 Appendices

3 MPFA at a Glance VISION Mpf - A Way of Life Commitment Quality Core Values Community Perspective Teamwork WHO WE ARE The Mandatory Provident Fund Schemes Authority ( MPFA ) is a statutory body established in September 1998 to regulate and supervise mandatory provident fund ( MPF ) schemes and occupational retirement schemes ( ORSO schemes ). MPF schemes are mandatory and privately managed contribution schemes. The MPF System has been in operation since 1 December ORSO schemes are retirement schemes set up voluntarily by employers to provide retirement benefits for their employees. Just before the launch of the MPF System, employers operating ORSO schemes had the option to apply for exemption from MPF requirements. MISSION To ensure the provision of retirement protection for Hong Kong s workforce through an effective and efficient system of prudential regulation and supervision of privately managed provident fund schemes.

4 Statistical Highlights About MPF schemes As at 31 Mar 2012 As at 31 Mar 2011 Enrolment rates (with number of participating members in brackets)* Employers 98% ( ) 100% ( ) Employees 99% ( ) 98% ( ) Self-employed persons 69% ( ) 77% ( ) Number of approved trustees Number of registered schemes Number of approved constituent funds Number of approved pooled investment funds Number of approved index-tracking collective investment schemes Aggregate net asset value of all schemes $ billion $ billion Annual contribution amount $42,955 million $38,648 million Annualized internal rate of return for the MPF System since 3.6% 5.4% 1 December 2000 Total value of the Compensation Fund $1.64 billion $1.52 billion About ORSO schemes Total number of schemes Exempted schemes: Number of schemes Registered schemes: Number of schemes Number of employees covered Aggregate net asset value of all schemes $ billion $ billion Annual contribution amount $16,677 million $17,296 million * Estimated figures 2 Mandatory Provident Fund Schemes Authority

5 Major Results and Future Initiatives The major results of MPFA s work in the financial year , as well as the initiatives to be taken in and beyond, are set out below. Objective 1 for : To ensure that the MPF System fulfils its role in providing retirement protection Major results in More information Objective 1 for : To refine, simplify and vigilantly regulate and supervise the MPF System to maximize its value to scheme members Initiatives in and beyond Review of the regulatory framework and refinements of the MPF System Assisted the Government in introducing into the Legislative Council the Mandatory Provident Fund Schemes (Amendment) (No. 2) Bill 2011, which mainly puts forward a proposed statutory regime for regulating the marketing and selling of MPF schemes Reviewed the minimum and maximum levels of relevant income for MPF contribution purposes and assisted the Government in introducing into the Legislative Council amendments to the subsidiary legislation to effect the adjustments Completed a comprehensive review of the current regulation of withdrawal of MPF benefits and conducted an open consultation on proposed changes Developed an automatic levy triggering mechanism for the MPF Schemes Compensation Fund and briefed the Legislative Council Panel on Financial Affairs on the mechanism Started studying the feasibility of setting up a central database of MPF scheme members as a possible option to remove some of the obstacles to the introduction of full portability of MPF benefits, so as to extend the Employee Choice Arrangement ( ECA ) to also cover accrued benefits derived from mandatory contributions made by employers Pages Attend to the legislative process of the proposal to strengthen the regulatory regime for MPF intermediaries Page 32 Review the adjustment mechanism of the minimum and maximum levels of relevant income for MPF contribution purposes Pages Assist the Government in introducing legislative amendments into the Legislative Council as necessary to effect the proposed changes Page 33 Assist the Government in introducing legislative amendments into the Legislative Council and to effect the proposed changes as necessary Page 30 Continue to study issues in relation to the introduction of full portability of MPF benefits Annual Report 2011/12 3

6 Major Results and Future Initiatives (cont d) Major results in Member protection More information Initiatives in and beyond Recovered $164.2 million in default MPF contributions on behalf of employees Developed legislative amendment proposals to enhance the deterrent effect against default contributions by employers Published a list of non-compliant employers and officers on MPFA s website Increased the visibility of MPFA s law enforcement actions through a TV drama series on common MPF offences Page 37 Step up the imposition of financial penalty on repeat defaulters and employers who fail to provide pay-records to employees or Page 38 notice of termination of employees to MPF trustees Page 38 Pursue initiatives to enhance MPFA s image in law enforcement to enhance deterrent effect Page 39 Supervision Conducted compliance checking of MPF investments Page 41 Analyze and assess performance of individual MPF funds and identify governance issues that call for improvement Review custodian arrangements of MPF assets Commenced a consultancy study on MPF trustees administration costs to understand and analyze trustees scheme administrative processes and costs and help identify measures to reduce the costs Directed and guided MPF trustees to prepare for the implementation of the amended minimum and maximum levels of relevant income Worked with MPF trustees to prepare for the implementation of ECA Page 41 Follow up on the outcomes of the consultancy study Page 42 Subject to the passage of the relevant legislation to enable an automatic levy triggering mechanism for the MPF Schemes Compensation Fund, supervise the trustees in preparation for implementing the mechanism by the appointed date Page 42 Ensure smooth implementation and operation of ECA (subject to the passage of the Mandatory Provident Fund Schemes (Amendment) (No. 2) Bill 2011 within the legislative session) 4 Mandatory Provident Fund Schemes Authority

7 Major results in Preparation for ECA More information Initiatives in and beyond Conducted on-site visits to MPF trustees to assess the readiness of their systems and processes for the implementation of ECA Devised comprehensive training strategies and conducted train-the-trainer workshops for MPF trustees, promoters and core Continuing Professional Development course providers, who arranged training on ECA and conduct requirements for all MPF individual intermediaries Developed a platform for electronic transmission of data on transfer of accrued benefits between MPF trustees and assisted the Government in developing legislative proposals to support the introduction of the platform Developed a computerized system for a Personal Account Register Rolled out publicity and communication programmes on ECA Page 54 Follow up with MPF trustees on individual issues to ensure their readiness for the implementation of ECA Pages Ensure all MPF individual intermediaries have completed training on ECA and conduct requirements for registered intermediaries before the launch of ECA Pages Launch the electronic platform along with ECA Page 55 Launch the Personal Account Register along with ECA Page 55 Carry out publicity and communication programmes to tie in with different stages of the implementation of ECA Annual Report 2011/12 5

8 Major Results and Future Initiatives (cont d) Objective 2 for : To strengthen public support and deepen their understanding of the MPF System and investments Major results in More information Objective 2 for : To strengthen public support and promote understanding of the MPF System, MPF investment, and the work of MPFA Initiatives in and beyond Launched programmes of the MPF Investment Education Campaign to educate scheme members on decision making at various stages of their MPF investment journey Organized joint programmes with stakeholders to broaden and consolidate support for the MPF System Educated the younger generation through parenting programmes and programmes in schools on the importance of financial planning and saving for the future Pages Roll out enhanced programmes under the MPF Investment Education Campaign to disseminate investment education messages to the general public Page 49 Cultivate closer links with Friends of MPF through dedicated activities for them and sharing of contributed articles to enhance their understanding of the MPF System and the work of MPFA Pages Organize renewed education and publicity activities for different age groups Launched thematic campaigns for different target groups including self-employed persons and Industry Scheme members Pages 49 and 52 Organize thematic campaigns for different target groups including self-employed persons, Industry Scheme members and minority groups Enhanced publicity on MPFA s enforcement efforts Page 39 Give further publicity to the MPF System, the role and functions of MPFA, and MPFA s enforcement actions 6 Mandatory Provident Fund Schemes Authority

9 Objective 3 for : To ensure that MPFA has the ability to deliver the planned programmes Major results in More information Objective 3 for : To build a strong team and effective systems to achieve MPFA s mission and deliver the planned programmes Initiatives in and beyond Reviewed and enhanced the structure and resources of various divisions to meet business needs, including the launch of ECA by end of 2012 Launched an advancement scheme for a designated grade to enhance the career development channel for staff, and created a new Award for MPFA s Role Model to give recognition to staff members who exemplified MPFA s core values Page 70 Conduct a comprehensive pay structure review for MPFA Page 71 Develop a competency model to facilitate the development of necessary staff skills to improve the operational effectiveness of MPFA Adopted green measures in office operations and participated in community service and charitable activities Awarded the Caring Organization logo, the Wastewi$e Environmental Label and Green Employer Pages Pages 68 and 73 Continue to extend MPFA s care towards employees, the environment and the community in fulfilment of its corporate social responsibility Implemented secure printing solution and data loss prevention system to enhance security controls and prevent data leakage Page 66 Conduct information technology security assessment and implement measures to enhance security Annual Report 2011/12 7

10 Chairman s Statement MPF S DEVELOPMENT TO DATE Overseas experience shows that it normally takes about 40 years for a retirement protection system to mature. Hong Kong s Mandatory Provident Fund ( MPF ) System has just entered its second decade of operation and by international standard it is still a very young system. We now have over 2.5 million scheme members in the System, with close to 100% enrolment rate. Together with those under other retirement schemes, close to 90% of the local working population, be they working in multi-national corporations or small and medium-sized local companies, are covered by some form of retirement protection today. This is a far cry from the pre-mpf era when only around 30% of the working population, mainly those in large corporations, was covered by retirement protection schemes. I think it is a fair statement that the MPF System has, to say the least, succeeded in establishing both employers and employees commitment to saving for the workforce s retirement. As at the end of the financial year, the net asset value of the System reached $ billion. With a total net amount of $ billion accumulated since inception of the System, investment returns had added $70.01 billion to the net contribution of members. In line with the fluctuations of the overall financial market, the rate of annualized return of MPF (net of fees and charges) since inception of the System dipped from last year s 5.4% to 3.6% (as at end of March 2012). Even so, the rate of annualized return still outperformed the average annual inflation rate of 1.2% and the one-month Hong Kong Dollar deposit rate of 0.9% per year over the same period. REFINEMENTS AND REFORMS Over the years, the Authority has taken many initiatives to refine and reform the System as part of our continuous drive to make sure it remains in tune with the needs of the society. The Authority maintains a list of MPF reform issues 8 Mandatory Provident Fund Schemes Authority

11 and regularly reviews their priority. A number of working groups have been formed under the Management Board to scrutinize more closely the reforms and refinement proposals that are under development. In May 2011, a Working Group on MPF Reform Issues was set up under my chairmanship to consider and put forward proposals regarding some of the priorities. These include the reduction of fees and charges and enhancement of the right of employees to choose MPF schemes. Fees and Charges The MPF System was designed to be privately managed by approved trustees. Administration fees for managing the schemes are allowed to be charged to the MPF funds because, unlike retail funds or other investment products, MPF trustees are mandated by the legislation to perform administrative functions, such as handling enrolments, collecting and allocating MPF contributions, following up and reporting default contributions etc. In response to calls for reduction in MPF fees, the Authority has introduced measures to simplify scheme administration and to enhance fee transparency. We have also been encouraging the industry to introduce low-cost products. The latest available average Fund Expense Ratio of MPF funds 1 was 1.74%, which represents a drop of 16% when compared with the ratio of 2.06% when it was first published 2. We consider that fees should decrease further and that it is important to maintain the downward trend. In December 2011, we commissioned a consultancy study to understand and analyze trustees costs with a view to identifying ways to further streamline administrative processes to achieve greater economies of scale, thereby allowing more room for fee reduction. A steering committee has been formed to monitor the progress of the study. We expect the study will conclude later this year, and then we will critically examine the findings to look for ways to put in further refinements to the System. Regulation of Sales and Marketing of MPF Schemes and the Employee Choice Arrangement The implementation of the Employee Choice Arrangement ( ECA ), or MPF Semi-Portability, which allows employees to transfer accrued benefits derived from their mandatory contributions to an MPF scheme of their own choice once a year, will give employees more control over their MPF investments. It is also expected to further intensify market competition and hence facilitate fee reduction in the long term. In the past year or so, the Authority has been focusing on ensuring all relevant parties would become ready for the launch of ECA the soonest after the legislation for regulating MPF intermediaries has been enacted. The intermediaries legislation gives the current regulatory framework a legal backing such that there would be better assurance that scheme members are protected from any improper marketing and selling activities of MPF intermediaries. MPF Full Portability ECA is only an interim solution to giving employees the full right to choose and manage their own MPF benefits. Looking further ahead, I am of the view that we should consider the feasibility of a full portability arrangement as a means to further enhance the right of employees to control their own MPF investments and to better facilitate market competition. This means that, in addition to accrued benefits arising from their own contributions, employees should also be allowed to transfer to an MPF scheme of their own choice the accrued benefits derived from their employers mandatory contributions. Given the current legislation allowing employers to use their MPF contributions made for employees to offset severance payments and long service payments, the Authority has to explore ways to enable employers to know the whereabouts of the accrued benefits in a cost effective way. Studies on the intricacies of implementing MPF full portability have started. 1 Derived from Fund Expense Ratios of individual constituent funds of MPF schemes with financial year-end dates falling within the period from 1 July 2010 to 30 June The average Fund Expense Ratio of individual constituent funds was first published in 2007 for MPF schemes with financial year-end dates falling within the period from 1 October 2005 to 30 September Annual Report 2011/12 9

12 Chairman s Statement (cont d) Minimum and Maximum Levels of Relevant Income for MPF Contribution Two refinements to the MPF System have recently been carried out. The Authority reviews the minimum and maximum levels of relevant income every four years in accordance with the statutory requirement. The most recent review resulted in proposals to adjust both the minimum and maximum levels, after having taken into account all relevant factors and views of stakeholders. The adjustment of the minimum level of relevant income to $6,500 came into operation on 1 November 2011, and the adjustment of the maximum level of relevant income to $25,000 commenced on 1 June MPF Schemes Compensation Fund Levy Proposed refinements with regard to the funding approach of the MPF Schemes Compensation Fund 3 are also well advanced. The legislative process to introduce an automatic levy triggering mechanism, under which the resumption and suspension of the Compensation Fund levy will be triggered at the reserve levels of $1 billion and $1.4 billion respectively, has already started as this report is being written. Withdrawal of MPF Benefits The MPF System has been in operation for over 11 years. While attention in the early years was on the accumulation phase and the creation of an administratively reliable and efficient System, the de-cumulation phase is equally important and will become even more so as the System matures and the population ages. Meanwhile, there have been calls from various stakeholders for relaxing the criteria for withdrawing MPF benefits such that MPF scheme members may withdraw their accrued benefits to meet their needs other than retirement. The Authority carried out a comprehensive review of the withdrawal of MPF benefits, covering whether there should be new circumstances that would allow scheme members to withdraw their MPF contributions early and whether to allow phased withdrawal upon their attainment of the retirement age of 65. The Management Board has set up a working group to examine the relevant issues and an open consultation was conducted on the major proposals. The Authority is currently reviewing the comments received in the consultation exercise. ENFORCEMENT AND PUBLIC EDUCATION Publicity to Deter Non-compliance Effective enforcement always goes hand-in-hand with public education and publicity. I am happy to see that the Authority has come forward to the front stage to increase the visibility of its law enforcement actions to enhance the deterrent effect on non-compliant parties. In addition to publicizing the Authority s enforcement efforts on TV, the web and in other mass media, a section on Non-Compliant Employer and Officer Records was launched on the Authority s website in May 2011 to publicize cases of criminal convictions and civil awards or judgments in connection with breaches of the MPF legislation. MPF Investment Education Scheme members individual MPF savings hinge on their investment decisions. Therefore, we attach great importance to investment education to help scheme members make informed decisions. It is imperative that our public education alert scheme members to the associated investment risks and educate them on the need to balance their investments, in particular, considering the high concentration of MPF assets in equities. As at end of March 2012, 64% of MPF assets were invested in equities, the values of which tend to be volatile and are more sensitive to short-term market fluctuations. 3 As at 31 March 2012, the MPF Schemes Compensation Fund amounted to $1.64 billion. The amount includes the $600 million seed money from the Government. The annual levy rate is currently 0.03% of the net asset value of MPF scheme assets. 10 Mandatory Provident Fund Schemes Authority

13 High Profile Public Education in Preparation for ECA In view of the progress made in the legislative process for the regulation of MPF intermediaries and the upcoming launch of ECA later this year, our MPF investment education efforts have been charged with new stamina. On the Authority s drawing board is a set of high profile public education and publicity programmes on ECA and MPF investment, to be rolled out once the MPF intermediaries legislation is in place. The Authority is also stepping forward to reach out to the over MPF intermediaries through train-the-trainer programmes, training courses and quality assurance measures to ensure that they are well prepared for ECA and well versed with the conduct requirements. DESIGN OF THE SYSTEM AND The Authority S ROLE I will stop highlighting the year s work here as it is described in much greater detail in the following chapters. Before I close, however, I would like to share my views on some common misconceptions. In recent years, voices calling for a universal retirement protection system have become louder and many of the advocates for such a system criticize the MPF System as failing to deliver adequate retirement protection. It is important to bear in mind that the MPF System is only one of the pillars of Hong Kong s retirement protection. It, of itself, was not designed to, and cannot fulfil the entire retirement needs of everyone in the community. Nonetheless, we realize there is room for improvement to the System with a view to maximizing the benefits for scheme members. The Authority is mindful of its role to efficiently and effectively regulate and supervise the operations of the MPF System with the ultimate goal of protecting the rights and interests of scheme members. We pay close attention to views and opinions expressed in the public arena, as well as those directed at the Authority and take them on board with considered priorities as far as possible. For issues involving policy consideration, the Authority will study them closely with the Government. VOTE OF THANKS The level of activities in the Authority is well reflected in the number of committees and working groups in operation, many were formed under the Management Board in recent years. Indeed, all members have worked incredibly hard and I am immensely grateful to them for their dedication and support over the past year. I wish to particularly thank the chairmen of the various committees and working groups, namely, Hon Ip Kwok-him of the Administration Committee, Mr Philip Tsai of the Finance Committee, Ms Paddy Lui of the Audit Committee, Hon Andrew Leung of the Tender Board, Mr Rimsky Yuen of the Guidelines Committee, Working Group on Regulation of Sales and Marketing of MPF Products and Working Group on Review of Withdrawal of MPF Benefits, and Mr John Poon of the Project Steering Committee on Consultancy Study on MPF Trustees Administration Costs. During the year, MPF Schemes Advisory Committee and MPF Industry Schemes Committee continued to provide valuable advice and suggestions on refinement and operation of the MPF System. I wish to pay special tribute to the Committees chairmen, Mr David Sun and Hon Wong Ting-kwong, for their staunch support. Last but not the least, the Authority s staff under the capable leadership of Mrs Diana Chan has put in another year of tremendous work. I appreciate their hard work and commitment to the MPF cause and would like to extend my sincere gratitude to them. Anna Wu Hung-yuk Chairman Annual Report 2011/12 11

14 Managing Director s Report THE YEAR IN REVIEW The MPF System, being a system of mandatory, privately-managed, fully funded contribution schemes, is one of the three pillars of retirement protection. It works together with the other two pillars (i.e. a publicly-managed, taxfinanced social safety net, and voluntary savings and insurance) to help the workforce save and support their basic retirement needs. The MPFA, charged with the responsibility of overseeing the operation of this second pillar, has been refining the MPF System over the years to enhance its effectiveness and efficiency. In the year , we advanced many areas of our work on enhancing the MPF System. A bill was introduced into the Legislative Council to put the regulation of MPF intermediaries on a statutory footing; the Employee Choice Arrangement ( ECA ), under which employees will be allowed to transfer the accrued benefits derived from their own mandatory contributions made during current employment from the schemes chosen by their employers to an MPF scheme of their own choice, is ready for launch once the intermediaries legislation is in place; and amendments to the legislation were prepared to suspend the levy for the MPF Schemes Compensation Fund. Further refinements to the MPF System are in the pipeline, including proposals to increase flexibility in withdrawing MPF benefits, and opportunities of enhancement identified from a consultancy study on MPF trustees administration costs. Of course, while busy with refining the MPF System, we have not lost sight of our on-going duties of monitoring MPF service providers, enforcing the law against non-compliant employers, and educating the public on the MPF System and MPF investment. Legislative Programmes A number of reviews undertaken in previous years have come to fruition. In accordance with statutory requirements, in 2010 we reviewed the minimum and maximum levels of relevant income for MPF contribution purposes to bring the levels more in line with the prevailing income situation of the working population. Legislative exercises relating to the adjustment of the income levels were completed during The revised minimum and maximum relevant income levels took effect on 1 November 2011 and 1 June 2012 respectively. 12 Mandatory Provident Fund Schemes Authority

15 In the light of our earlier review of the effectiveness of the framework for regulating the sales and marketing of MPF schemes, we worked closely with the Government and the frontline regulators on a statutory regime to regulate the activities of MPF intermediaries. We assisted the Government in introducing a bill for that purpose into the Legislative Council in December At the time of writing this report, the Bill is being considered by the Legislative Council. As the assets of the MPF Schemes Compensation Fund have been growing, we reviewed its funding approach and proposed the optimum reserve level and a mechanism for the suspension and resumption of the levy for the Fund. We helped the Government prepare the relevant legislative amendments, which was introduced into the Legislative Council in May Other Reviews and Studies Having completed a review of the rules governing the withdrawal of MPF benefits, we conducted an open consultation on two proposals to increase flexibility with regard to the mode of payment of MPF benefits and grounds of early withdrawal. On the basis of the results of the consultation, we will propose legislative amendments as appropriate. Another major exercise initiated during the year is a study on MPF trustees administration costs. We engaged an independent consultant to analyze trustees administration processes and costs in greater depth. The findings may shed light on measures to reduce costs to make room for further reductions in fees. Supervision of MPF Trustees and Intermediaries The year 2011 saw many challenges to the financial markets in various parts of the world. The MPF market, as an integral part of Hong Kong s financial market, was inevitably affected. In response, we requested all trustees to assess the possible impact of adverse developments in the global financial markets on the operation of the MPF funds under their trusteeship, and asked them to take appropriate actions proactively to safeguard scheme members interests. As usual, we conducted compliance checking of MPF investments, followed up breach cases and saw to it that measures were implemented to prevent recurrence. In view of various changes introduced to the MPF System, we gave guidance to MPF trustees in order to facilitate a smooth transition. We drew up the action list to prepare for the implementation of the amended minimum and maximum relevant income levels, and paid on-site visits to assess trustees readiness. In preparing for ECA, we conducted a round of on-site visits to trustees to review their system enhancement and control processes, assessed their compliance with the guidelines on transfer of accrued benefits, and tested their electronic system for the automation of the transfer process to ensure that the system works in a secure manner. We attach great importance to the training of MPF intermediaries, especially when it is anticipated that more MPF marketing and selling activities will be directed at individual scheme members after the launch of ECA. Apart from quality assurance through class visits, vetting of course materials and sharing sessions with course providers and trustees, we designed train-the-trainer courses to strengthen intermediaries understanding of the MPF System, ECA and the regulatory regime for intermediaries. Member Protection We continued to handle default contribution cases reported by employees and trustees, and recover MPF contributions in arrears on behalf of employees. For the first time, an employer was given a community service order and another a suspended jail sentence upon conviction of MPF offences. These cases give a strong message that failure to make MPF contributions for employees is a serious offence. To further enhance deterrence, we have proposed to tighten the MPF legislation by making an employer s failure to pay mandatory contributions a continuous offence and making an employer s failure to pay any sum payable under tribunal or court awards a criminal offence. Annual Report 2011/12 13

16 Managing Director s Report (cont d) The proposals are going through the legislative process. We also published a list of non-compliant employers and officers on our website as another deterrent to non-compliance. To promote public awareness and understanding of employees and employers MPF rights and obligations and facilitate compliance, we launched a TV drama series, jointly produced with the Television Division of Radio Television Hong Kong, on common MPF offences and MPFA s enforcement actions. We also continued to upload significant enforcement cases and explain common misconceptions about MPF obligations and requirements on MPFA s website. Public Education Investment education continued to be the major theme of public education during the year. Various programmes were carried out to educate scheme members about factors to be considered in making MPF investment decisions. Messages were disseminated through popular channels including radio, television, the print media, out-of-home media, websites and social networking platforms. Apart from the JJ Five Band representing the five major types of MPF funds, comic strips featuring a popular local comic character were developed as another means to get investment education messages across in a lively and interesting manner. Greater use has been made of online media to appeal to the younger generation, with online games, competitions and voting activities to attract their attention. At the community level, we continued to work closely with various stakeholders, including the Government, employee groups, employers associations, the industry, professional bodies, political parties, District Councils and community groups, partnering with them to provide education on MPF investment through district carnivals, seminars, exhibitions and other outreaching activities. In addition, education and publicity programmes were tailor-made for specific target groups, including different groups of students and school children, job seekers, self-employed persons and Industry Scheme members. As a new initiative, we collaborated with several vocational training organizations and industry bodies to reach out to students aspiring to join the catering and construction industries. Staff and the Organization With Commitment, Teamwork, Quality and Community Perspective as our core values, we foster the delivery of quality results through dedicated efforts, cooperation with internal and external parties, and attention to the needs of the community. Staff members who exemplify our core values are recognized through our annual corporate staff recognition programme. Externally, two members of our staff won the Ombudsman s Awards 2011 for their exemplary service to the public. This is the ninth year that the award has been conferred on MPFA staff members. We here at MPFA give due regard to colleagues physical and emotional well-being. We are pleased to be granted the Wastewi$e Environmental Label for the second consecutive year recognizing our achievements in green management and waste reduction, and awarded Green Employer for our support of a green environment by submitting tax returns electronically. Through the operation of the MPFA Volunteer Team, we continued to encourage our staff to extend their care towards the community. For the concern we have shown for employees, the environment and the community, we were awarded the Caring Organization logo for the seventh consecutive year. LOOKING FORWARD Since the inception of the MPF System in 2000, we have been continually working towards improving the System in the light of operational experience, comments from stakeholders and latest market developments. While changes have been made over the years to streamline scheme operations, enhance enforcement measures and improve disclosure and transparency, we still maintain a long list of possible enhancements to the System and regularly review the priority of the issues on the list. During a strategic planning exercise conducted in the past months, we concluded that driving reform and development of the MPF System would be one of our key roles. With the Government s policy direction of enhancing the existing retirement protection system, we will set foot on further refinements and reforms in , focusing on the priority issues of reducing fees and enhancing employees choice. 14 Mandatory Provident Fund Schemes Authority

17 Much of our efforts will be devoted to programmes that have already commenced in We will follow through the legislative exercises on the statutory regime for regulating MPF intermediaries and the automatic levy triggering mechanism of the MPF Schemes Compensation Fund, and attend to their implementation. With the preparatory work in good progress, we will launch ECA at an appropriate time after the passage of the bill on intermediaries. Meanwhile, we will continue to study full portability to cover also accrued benefits derived from mandatory contributions made by employers. We will follow up the results of the consultation on the withdrawal of MPF benefits and the consultancy study on MPF trustees administration costs, and propose necessary legislative amendments or enhancement measures as appropriate. In respect of supervision of MPF trustees, we will review the custodian arrangements of MPF assets, analyze the performance of individual MPF funds, and identify governance issues that call for improvement. Policies, strategies and procedures relating to the handling of trustees breaches will be reviewed and enhanced. Training of MPF intermediaries will be further strengthened to improve their quality of service. Regarding the compliance of employers, we will take stern actions to penalize employers who fail to fulfil MPF requirements, take further initiatives to publicize law enforcement actions for deterrence, and educate employers about their MPF obligations. Public education programmes will also continue with a view to equipping scheme members with the knowledge to make informed MPF choices. Enhanced programmes will be launched on risk management and more technical knowledge about MPF investment, and greater use will be made of internet and mobile technology to reach a wider audience. VOTE OF THANKS In pursuing our goals in the past year, we have been most fortunate to have the guidance and support of the Chairman and Members of the Management Board and its supporting committees. My special thanks also go to two former Management Board Members, Hon Wong Ting-kwong and Mr David Sun, who continued their service on the Working Group on Withdrawal of MPF Benefits after retiring from the Board in March Mr Sun also participated in the Working Group on MPF Reform Issues and contributed to deliberations on key reforms. I am also grateful to the MPF Schemes Advisory Committee and MPF Industry Schemes Committee, chaired by Mr David Sun and Hon Wong Ting-kwong respectively, whose members have given valuable advice on various aspects of the MPF System and the operation of Industry Schemes. Finally, my deep appreciation goes to my colleagues who have demonstrated professionalism, dedication and commitment in discharging their duties. Without their relentless efforts and staunch support, we would not have been able to achieve so much in Diana Chan Tong Chee-ching Managing Director Annual Report 2011/12 15

18 The Management Board The role of the Management Board and its supporting committees, the number of meetings held during the year and the attendance rates of members are on pages 59 to 63 in the chapter Corporate Governance. Members of the Management Board (as at 31 March 2012) Chairman The Hon Anna Wu Hung-yuk, GBS, JP (Since 17 March 2009; current term will expire on 16 March 2013) Solicitor, Hong Kong; Non-official Member, Executive Council; Director, Financial Dispute Resolution Centre Limited; Council Member, Hong Kong International Arbitration Centre; Chair, Academic Board for PCLL of the University of Hong Kong; Independent Non-executive Director, TOM Group Limited; has held a number of public offices in the past, including Non-executive Director, MPFA ( ); Member, Legislative Council; Chair, Equal Opportunities Commission; Chair, Consumer Council; Chair, Operations Review Committee of the Independent Commission Against Corruption; and Nonexecutive Director, Securities and Futures Commission. Non-executive Directors The Hon Li Fung-ying, SBS, JP (Since 17 March 2007; current term will expire on 16 March 2013) Member, Legislative Council; Nonofficial Member, Steering Committee on Community Care Fund; Member, Fight Crime Committee; Member, Vocational Training Council; Ex-officio Executive Councillor, Heung Yee Kuk New Territories; Member, Advisory Committee on Admission of Quality Migrants and Professionals. 16 Mandatory Provident Fund Schemes Authority

19 The Hon Andrew Leung Kwan-yuen, GBS, JP (Since 17 March 2009; current term will expire on 16 March 2013) Member, Legislative Council; Honorary President, Federation of Hong Kong Industries; Honorary Chairman, Textile Council of Hong Kong; Council Member, Hong Kong Trade Development Council; Member, Commission on Strategic Development; Vice Chairperson, CreateSmart Initiative Vetting Committee; Director, The Hong Kong Mortgage Corporation Limited; Chairman, Sun Hing Knitting Factory Ltd. The Hon Wong Kwok-kin, BBS (Since 17 March 2009; current term will expire on 16 March 2013) Member, Legislative Council; Vice President, Hong Kong Federation of Trade Unions; Member, Commission on Strategic Development; Nonexecutive Director, Urban Renewal Authority; Member, Hong Kong Housing Authority; Member, Subsidised Housing Committee, Hong Kong Housing Authority; Member, Security and Guarding Services Industry Authority. Mr Rimsky Yuen Kwok-keung, SC, JP (Since 17 March 2010; current term will expire on 16 March 2014) Senior Counsel; Chairman, Transport Advisory Committee; Member, Judicial Officers Recommendation Commission; Member, High Court Rules Committee; Chairman, Hong Kong Bar Association ( ). Annual Report 2011/12 17

20 The Management Board (cont d) The Hon Ip Kwok-him, GBS, JP (Since 17 March 2011; current term will expire on 16 March 2013) Deputy to the National People s Congress of the PRC; Member, Legislative Council; Member, Central and Western District Council (Kwun Lung); Non-executive Director, Urban Renewal Authority; Member, Hong Kong Housing Authority; Member, Governing Committee of the Beat Drugs Fund Association. Ms Paddy Lui Wai-yu, BBS, JP (Since 17 March 2011; current term will expire on 16 March 2013) Executive Director, K Wah International Holdings Limited; Executive Director, Galaxy Entertainment Group Limited; Member, Election Committee of the HKSAR; Member, General Committee of The Chamber of Hong Kong Listed Companies; Founding Member, Board of Opera Hong Kong Limited. Mr John Poon Cho-ming (Since 17 March 2011; current term will expire on 16 March 2013) Solicitor, Hong Kong; Member, Financial Reporting Council; Council Member, Hong Kong Institute of Certified Public Accountants ( ); Member, Board of Review (Inland Revenue Ordinance) ( ); Member, Standing Committee on Company Law Reform ( ). 18 Mandatory Provident Fund Schemes Authority

21 Mr Philip Tsai Wing-chung (Since 17 March 2011; current term will expire on 16 March 2013) Audit Partner, Deloitte; Immediate Past President, Hong Kong Institute of Certified Public Accountants; Member, Audit Committee of the Western Kowloon Cultural District Authority; Panel Member, Securities and Futures Appeals Tribunal; Member, Vetting Committee of the Professional Services Development Assistance Scheme; Member, Occupational Retirement Schemes Appeal Board; Member, Nomination Committee of the Chinese Gold and Silver Exchange. Secretary for Financial Services and the Treasury (Since 1 July 2002; current term will expire on 16 March 2013) Prof the Hon K C Chan, SBS, JP (the incumbent) was Dean of Business and Management, the Hong Kong University of Science and Technology ( ); Faculty Member, the Hong Kong University of Science and Technology ( ) and Ohio State University, United States ( ). Alternate: Permanent Secretary for Financial Services and the Treasury (Financial Services) Secretary for Labour and Welfare (Since 1 July 2007; current term will expire on 16 March 2013) The Hon Matthew Cheung Kinchung, GBS, JP (the incumbent) was previously Permanent Secretary for Economic Development and Labour (Labour) and Commissioner for Labour. Alternate: Permanent Secretary for Labour and Welfare Annual Report 2011/12 19

22 The Management Board (cont d) Executive Directors Mrs Diana Chan Tong Chee-ching, JP Deputy Chairman and Managing Director (Since 1 July 2004; current term will expire on 30 June 2013) Chief Operating Officer (Corporate Affairs), MPFA ( ); Executive Director (Corporate Services), MPFA ( ); commissioned the Wong Chuk Hang Hospital and appointed as its first Hospital Chief Executive ( ); Deputy Director (Administration), Hospital Authority ( ); Administrative Officer to Principal Assistant Secretary in the Administrative Officer Grade, Hong Kong Government ( ). Ms Hendena Yu, JP Chief Operating Officer (Enforcement) (Since 4 June 2001; current term will expire on 2 July 2012) Qualified actuary; Executive Director (ORSO Schemes), MPFA ( ); seconded from the Government to MPFA ( ); worked for an employee benefits consulting firm for 13 years before joining the Office of the Registrar of Occupational Retirement Schemes in 1995, responsible for matters related to occupational retirement schemes. Mr Darren Mark McShane Executive Director (Regulation & Policy) (Since 25 March 2002; current term will expire on 24 March 2014) Qualified barrister; Member, Product Advisory Committee, Securities and Futures Commission; Member, Examination Board, Institute of Financial Planners of Hong Kong; Director, Financial Services Regulation, Australian Securities and Investments Commission ( ); Enforcement & Policy Consultant, Investment Management Regulatory Organisation Limited, United Kingdom ( ). 20 Mandatory Provident Fund Schemes Authority

23 Mr Thomas Yiu Kei-chung Executive Director (Corporate Services) (Since 7 November 2006; current term will expire on 14 September 2012) Head (Corporate Services), MPFA ( ); has served for over 30 years in a number of Government departments and related bodies including the Trade and Industry Department, Economic Services Branch, Hong Kong Export Credit Insurance Corporation, and Health, Welfare and Food Bureau. Ms Cynthia Hui Wai-yee Executive Director (Supervision) (Since 1 February 2008; current term will expire on 31 January 2014) Qualified actuary; Fellow of the Institute of Actuaries of Australia; Chief Supervision Manager, MPFA ( ); Advisor (Insurance Affairs), MPFA ( ); has held actuarial positions in major insurance companies in Australia for over 15 years before joining MPFA. Annual Report 2011/12 21

24 MPF Schemes Advisory Committee The MPF Schemes Advisory Committee ( MPFSAC ) is a statutory advisory committee established under the Mandatory Provident Fund Schemes Ordinance ( MPFSO ) to make recommendations to MPFA as to the operation of the MPFSO and the effectiveness and efficiency of MPFA. The MPFSAC consists of an executive director designated by MPFA and 10 other members appointed by the Chief Executive of HKSAR. The chairman and deputy chairman of the MPFSAC are appointed by the Chief Executive from amongst its members. Members of the MPFSAC (as at 31 March 2012) Chairman Mr David Sun Tak-kei, BBS, JP (Since 30 March 2011; current term will expire on 29 March 2013) Retired Far East Area Chairman and Managing Partner, Ernst & Young Deputy Chairman Mrs Diana Chan Tong Chee-ching, JP (Since 1 July 2003; current term will expire on 29 March 2013) Managing Director, MPFA Other Members Mr Stanley Lau Chin-ho, BBS, MH, JP (Since 30 March 2007; current term will expire on 29 March 2013) Deputy Chairman, Federation of Hong Kong Industries Ms Ng Wai-yee, MH (Since 30 March 2009; current term will expire on 29 March 2013) Vice Chairman, Federation of Hong Kong and Kowloon Labour Unions Mr William Chan Che-kwong (Since 30 March 2011; current term will expire on 29 March 2013) Director, Broadway Photo Supply Limited The Hon Ip Wai-ming, MH (Since 30 March 2011; current term will expire on 29 March 2013) Member, Legislative Council 22 Mandatory Provident Fund Schemes Authority

25 Mrs Agnes Koon Woo Kam-oi (Since 30 March 2011; current term will expire on 29 March 2013) Chief Executive, KSY Speciality Limited Mr Larry Kwok Lam-kwong, BBS, JP (Since 30 March 2011; current term will expire on 29 March 2013) Managing Partner (China), Mallesons Stephen Jaques The Hon Fred Li Wah-ming, SBS, JP (Since 30 March 2011; current term will expire on 29 March 2013) Member, Legislative Council Mr Paul Pong Po-lam (Since 30 March 2011; current term will expire on 29 March 2013) Managing Director, Pegasus Fund Managers Limited Mrs Bethy Tam Ho Kum-man (Since 30 March 2011; current term will expire on 29 March 2013) Head of Governance & Strategic Initiatives, Hong Kong, Standard Chartered Bank (Hong Kong) Limited During the year, the MPFSAC convened three meetings. The average attendance rate of members was 85%. The Committee s views were sought on the proposed amendments to the MPF legislation and the proposed framework for the regulation of MPF intermediaries. It also gave valuable comments on the results of review of withdrawal of MPF benefits, the proposed automatic levy triggering mechanism for the MPF Schemes Compensation Fund, and MPFA s external communication strategy. It received reports on various aspects of MPFA s work, including supervision, enforcement, regulation and policy, public education and publicity, and the implementation of the Employee Choice Arrangement. Annual Report 2011/12 23

26 MPF Industry Schemes Committee Industry Schemes are MPF schemes set up for employers and employees in the catering and construction industries which are of high labour mobility. The MPF Industry Schemes Committee ( ISC ) is a statutory advisory committee established under the Mandatory Provident Fund Schemes Ordinance to monitor the effectiveness of Industry Schemes and to advise on ways to improve the administration and operation of the schemes in the interests of scheme members. The ISC consists of a chairman, at least one (but no more than two) representative(s) of the approved trustee of each Industry Scheme nominated by that trustee, and no fewer than six other persons, all appointed by the Financial Secretary of HKSAR. An executive director is designated by MPFA to serve on the ISC. Members of the ISC (as at 31 March 2012) Chairman The Hon Wong Ting-kwong, BBS, JP (Since 25 August 2006; current term will expire on 24 August 2012) Member, Legislative Council Other Members Mr Hiew Chin, BBS, MH (Since 25 August 2006; current term will expire on 24 August 2012) Chairman, The Sai Kung Food and Beverages Association Mr Thomas Ho On-sing, JP (Since 25 August 2006; current term will expire on 24 August 2012) President, Hong Kong Construction Association Mr Tsang Peng-sun (Since 25 August 2006; current term will expire on 24 August 2012) Supervisor, Vocational Skills Training Centre of the Chinese & Western Food Workers Union Mr Yuen Fuk-wo (Since 25 August 2006; current term will expire on 24 August 2012) Chairman, Eating Establishment Employees General Union Mr Ng Kwok-kwan (Since 25 August 2008; current term will expire on 24 August 2012) Vice Chairman, Hong Kong Construction Industry Employees General Union 24 Mandatory Provident Fund Schemes Authority

27 Mr Conrad Wong Tin-cheung, JP (Since 25 August 2008; current term will expire on 24 August 2012) Vice Chairman, Yau Lee Holdings Limited Mr Chan Sam-choi (Since 25 August 2010; current term will expire on 24 August 2012) Chief Executive, Hong Kong Dumper Truck Drivers Association Mr Chan Wing-on (Since 25 August 2010; current term will expire on 24 August 2012) President, Hong Kong Federation of Restaurants & Related Trades Mr Adrian Li Man-kiu, JP (Since 25 August 2006; current term will expire on 24 August 2012) Director, Bank of East Asia (Trustees) Limited Mr Ivan Liu Sin-keung (Since 25 August 2008; current term will expire on 24 August 2012) Senior Vice President, Scheme Administration, Bank Consortium Trust Company Limited Mr Thomas Yiu Kei-chung (Since 7 November 2006; current term will expire on 24 August 2012) Executive Director (Corporate Services), MPFA During the year, the ISC held three meetings. The average attendance rate of members was 78%. It received reports from MPFA and the approved trustees of Industry Schemes on enrolment, administration, enforcement and publicity matters associated with the Industry Schemes. It provided advice on the operational aspects of the construction and catering industries with a view to fostering support and enhancing compliance. It also discussed the proposals to simplify the contribution calculation methods for casual employees who are members of Industry Schemes. Annual Report 2011/12 25

28 The Management Team As at 31 March 2012, the senior management of MPFA comprised: 1 Mrs Diana Chan, Managing Director Ms Hendena Yu, Chief Operating Officer (Enforcement) 3 Mr Darren McShane, Executive Director (Regulation & Policy) 4 Mr Thomas Yiu, Executive Director (Corporate Services) 5 Ms Cynthia Hui, Executive Director (Supervision) 6 Ms Ingrid Lai, General Counsel 7 Mrs Betty Chan, Head (External Affairs) 8 Mr Andy Tong, Head (Information Technology) 9 Mr Ronnie Lai, Head (Member Protection) 10 Mr Joseph Lee, Head (Supervision) 11 Ms Gabriella Yee, Head (Policy Development & Research) 12 Ms Stella Yiu, Head (Investment Regulation) 13 Mr Eric Lee, Head (Corporate Services) 26 Mandatory Provident Fund Schemes Authority

29 The Organization Structure (as at 31 March 2012) - Administration Committee - Audit Committee - Finance Committee - Guidelines Committee - Tender Board - Ad hoc committees / working groups MANAGEMENT BOARD MPF SCHEMES ADVISORY COMMITTEE MPF INDUSTRY SCHEMES COMMITTEE MANAGING DIRECTOR CHIEF OPERATING OFFICER (Enforcement) EXECUTIVE DIRECTOR (Supervision) EXECUTIVE DIRECTOR (Regulation & Policy) EXECUTIVE DIRECTOR (Corporate Services) Head (Supervision) Head (Member Protection) Head (Investment Regulation) Head (Policy Development & Research) General Counsel HEAD (External Affairs) Head (Corporate Services) HEAD (Information Technology) Supervision Division Approval of MPF trustees, schemes and investment funds Supervision and monitoring of compliance of MPF trustees / investment products Registration and supervision of MPF intermediaries Registration and supervision of ORSO schemes Member Protection Division Monitoring of enrolment in MPF schemes and withdrawal of accrued benefits Enforcement of the law: Issuance of default contribution surcharge notices Complaint handling Investigation and inspection Claims and prosecution Business Systems Development Unit Development of strategies to improve business systems Recommendation and implementation of information systems to enhance business effectiveness and efficiency Regulation & Policy Division Policy and legislation of MPF and ORSO schemes Regulation of MPF-related investment MPF codes and guidelines Research on matters relating to retirement protection Statistics Legal services Internal legal advice External Affairs Division Publicity and public education Press and media relations External relations Community relations Corporate Services Division Corporate planning and reporting Boards and committees Human resources General administration Organization development Budgeting and financial control Treasury Information Technology Division Policy on information technology Information system development Information system maintenance and security Technical support Liaison Unit Liaison and networking Call Centre operation Customer service Community relations Risk Management Unit Risk management Internal audit Management review Annual Report 2011/12 27

30 e k a M a Good Choice

31 Refining the Regulatory Framework OVERVIEW Our role Review regulatory issues and operational policies of the MPF System Consider the need for amendments or reforms to existing legislation and make proposals to the Government where appropriate Review existing MPF Guidelines and Codes and make amendments as appropriate Prepare new MPF Guidelines and Codes as appropriate Conduct research in support of MPFA s role as regulator of the MPF System In , we Assisted the Government in introducing into the Legislative Council the Mandatory Provident Fund Schemes (Amendment) (No. 2) Bill 2011, which puts forward a proposed statutory regime for regulating the marketing and selling of MPF schemes, and proposals to deal with enforcement issues and the operation of a platform for electronic transmission of data on transfer of accrued benefits Reviewed the current MPF requirements on securities lending by MPF funds Reviewed the minimum and maximum levels of relevant income for MPF contribution purposes and assisted the Government in introducing into the Legislative Council amendments to the subsidiary legislation to effect the adjustments Completed a comprehensive review of the current regulation of withdrawal of MPF benefits and conducted an open consultation on the proposals Developed an automatic levy triggering mechanism for the MPF Schemes Compensation Fund and briefed the Legislative Council Panel on Financial Affairs on the mechanism Assisted the Government in introducing into the Legislative Council the Mandatory Provident Fund Schemes (Amendment) Bill 2011 on the protection of accrued benefits derived from mandatory contributions held in an MPF scheme in the event of bankruptcy of scheme members and attended to the enactment of the Bill Continued with the project to improve disclosure of information Amended 10 sets of existing MPF Guidelines ENHANCEMENT OF THE MPF SYSTEM Ever since the inception of the MPF System, the Government and MPFA have been reviewing and refining the System in the light of operational experience. Many operational aspects have been enhanced and improved with the completion of 12 major legislative amendment exercises to amend the MPF legislation. The Chief Executive stated in his 2011 Policy Address, It is not easy for the community to reach a consensus on a universal retirement protection scheme It is more constructive to enhance the existing retirement protection system. He mentioned some areas of work of MPFA in enhancing the MPF System, including fees, employee choice, and withdrawal of benefits. Along these directions, we will continue to develop enhancements to the System with a view to contributing to better retirement protection for the working population. Given the broad range of possible Annual Report 2011/12 29

32 Refining the Regulatory Framework (cont d) system enhancements, we rigorously prioritize issues in order to plan for and resource focus areas. A Management Board Working Group on MPF Reform Issues (the Working Group ) was formed in May 2011 to study in detail two priority issues, namely, measures to reduce fees and charges of MPF funds and measures to increase employees choices of MPF products. Fees and Charges of MPF Funds On the Working Group s advice, we commissioned an independent consultancy study to understand and analyze trustees administration costs in greater depth so as to identify ways to achieve streamlining, economies of scale and where possible, cost reduction. Details of the project are set out in the chapter Supervising the Industry. Employees Choices of MPF Schemes The Employee Choice Arrangement ( ECA ) (commonly known as MPF Semi-Portability ) allowing transfer of accrued benefits derived from employee mandatory contributions under prescribed conditions will offer employees more control over their choice of MPF service providers and products. Preparation for the implementation of ECA is underway (details can be found in the chapter Preparing for the Implementation of the Employee Choice Arrangement ). We believe that in the long run, it will be in MPF scheme members best interest if MPF Semi-Portability could be expanded to also cover accrued benefits derived from employer mandatory contributions (i.e. MPF full portability). While preparing for the implementation of ECA, we have also started studying issues in relation to full portability, including the feasibility of setting up a central database to capture data of scheme members MPF accounts in different schemes. REGULATION OF MARKETING AND SELLING OF MPF SCHEMES Since the inception of the MPF System, we have adopted an administrative regime for the regulation of marketing and selling of MPF schemes, relying on the regulatory efforts of the frontline regulators 1 to supervise MPF intermediaries in the banking, insurance and/or securities sectors. In order to better protect the interests of scheme members, we intend to reinforce the regime by statute. This exercise is expedited by rising public expectations for investor protection and the plan to launch ECA, after which about 2.5 million MPF scheme members might be subject to more aggressive and direct selling activities. We believe that it is prudent to put in place a statutory regulatory regime for MPF intermediaries before implementing ECA. - Mr Rimsky Yuen, Chairman of the Working Group on Regulation of Sales and Marketing of MPF Products In discussion with the Government and the frontline regulators, we developed a proposed statutory regulatory regime for MPF intermediaries. The regime will impose criminal sanctions against marketing and selling of MPF schemes by unregistered persons, and specify the respective regulatory and supervisory powers and functions of MPFA and the frontline regulators in this respect. The MPFA will be the sole authority to register MPF intermediaries and is empowered to issue guidelines on compliance with statutory requirements, as well as to impose disciplinary sanctions against non-compliant intermediaries. Moreover, MPFA will handle complaints on MPF sales and marketing activities and may refer cases to the relevant frontline regulators, where appropriate. The frontline regulators will be responsible 1 The Hong Kong Monetary Authority, the Insurance Authority and the Securities and Futures Commission. 30 Mandatory Provident Fund Schemes Authority

33 for the supervision and investigation of registered MPF intermediaries whose core business is in banking, insurance or securities. This institution-based regulatory approach is broadly similar to the existing administrative regime and would enable efficient use of resources and reduce regulatory gaps. Existing MPF intermediaries are familiar with the approach and will have to make only minimal adjustments, thus minimizing compliance cost. The proposed legislative amendments covered by the Mandatory Provident Fund Schemes (Amendment) (No.2) Bill 2011 were introduced into the Legislative Council on 14 December The scrutiny of the Bill is in progress. Subject to the passage of the Bill within the legislative session, we expect to launch ECA on 1 November Legislative process of the regulatory regime for MPF intermediaries 28 March April July December 2011 The Government and MPFA submitted a paper on the proposed regime to the Legislative Council Panel on Financial Affairs. Consultation started. The Legislative Council Panel on Financial Affairs discussed the proposal. The Government and MPFA reported the results of the consultation to the Legislative Council Panel on Financial Affairs. The Mandatory Provident Fund Schemes (Amendment) (No. 2) Bill 2011, covering the proposed regime, was gazetted. 6 March January December 2011 Scrutiny of the Bill is in progress. The Bills Committee held a public hearing to collect views of the industry and related sectors. A Bills Committee of the Legislative Council was formed to scrutinize the Bill, and held its first meeting. The Government introduced the Mandatory Provident Fund Schemes (Amendment) (No. 2) Bill 2011 into the Legislative Council. Meanwhile, in consultation with the frontline regulators and the industry, we are developing a set of Guidelines on Conduct Requirements for Registered Intermediaries. The document aims to provide the industry with guidance on the expected conduct standards of regulated persons engaging in regulated MPF activities and to guide the frontline regulators in performing supervisory and investigatory functions. SECURITIES LENDING BY MPF FUNDS Following a substantial fall in the Hong Kong equities market in August/September 2011, some public and media interest arose as to the effects of short selling and the extent to which securities in MPF funds might be lent to investors for short selling purposes. Consequently, we commenced a review of securities lending in the MPF market. MPF funds are permitted to lend securities, subject to various regulatory safeguards. Some MPF requirements on securities lending: 1 No more than 10% of the assets of a fund should be lent at any one time 2 The value of the collateral provided by the borrower must exceed the value of the securities lent and must be marked to market daily 3 Securities lending is allowed only if it brings in additional income (net of fees and expenses) for scheme members and does not adversely affect their interests 4 Securities must not be lent to anonymous borrowers Annual Report 2011/12 31

34 Refining the Regulatory Framework (cont d) Our enquiries with MPF trustees indicated that securities lending by MPF funds had not led to price falls in Hong Kong equities as no MPF fund had engaged in securities lending to date. Our review of current MPF requirements found that they are generally comprehensive in covering the key aspects of securities lending relating to disclosure, operation, collateral and counterparty requirements and are comparable to those in other jurisdictions. The MPFA Management Board concluded that there was no need to propose a more restrictive regulatory approach to securities lending, but MPFA will continue to monitor practices and explore adding supplementary safeguards to existing requirements as considered necessary. MINIMUM AND MAXIMUM LEVELS OF RELEVANT INCOME FOR MPF CONTRIBUTION PURPOSEs The MPF legislation provides that unless exempted, an employee, his/her employer and a self-employed person must make mandatory contributions, subject to the minimum and maximum relevant income ( RI ) levels, to an MPF scheme. Separately, the legislation requires MPFA to conduct a review of the minimum and maximum RI levels at least once every four years. In 2010, we completed a review as required by the legislation and reported the findings to the Government. Taking into account different views collected, the Government made proposals to the Legislative Council to adjust the RI levels. Proposed amendments to the subsidiary legislation 2 were introduced into and passed by the Legislative Council in 2011 to effect the adjustments as described below. With the passage of proposed amendments to the subsidiary legislation on 30 June 2011, the monthly minimum RI level was raised from $5,000 (a level effected since 2003) to $6,500 (effective from 1 November 2011). The daily minimum RI level was also raised from $160 to $250. With the new minimum RI level, it is estimated that approximately an additional lower-income employees and self-employed persons are exempted from making mandatory contributions, thus retaining more take-home pay. The employers of the exempt employees are still required to pay the employer mandatory contributions for the employees. With the passage of proposed amendments to the subsidiary legislation on 23 November 2011, the monthly maximum RI level was raised from $20,000 (a level maintained since 2000) to $25,000 (effective from 1 June 2012). The daily maximum RI level was raised from $650 to $830. Under the new maximum RI level, it is estimated that more than employees and self-employed persons will have to make more mandatory contributions, thus saving more for retirement. The employers of these employees also have to make more employer mandatory contributions for the employees. WITHDRAWAL OF MPF BENEFITS Over the years, there have been calls for relaxing the criteria for withdrawal of MPF benefits so that scheme members could use the benefits to meet urgent or immediate needs. In 2011, we completed a comprehensive review of the current regulation of withdrawal of MPF benefits, covering the grounds for early withdrawal and mode of payment of benefits. Bearing in mind that MPF savings are for retirement purposes only, and the key principle of ensuring a certain level of retirement protection for scheme members, we developed two proposals to increase flexibility with regard to the withdrawal of MPF benefits, which were: 2 Mandatory Provident Fund Schemes Ordinance (Amendment of Schedule 2) Notice 2011 and Mandatory Provident Fund Schemes Ordinance (Amendment of Schedule 3) Notice Mandatory Provident Fund Schemes Authority

35 1. Allowing scheme members to choose the mode of payment of MPF benefits on the grounds of retirement or early retirement, either in a lump sum or in stages; and 2. Introducing an additional ground for early withdrawal of MPF benefits, when a scheme member is certified to have a terminal illness 3. We consider it appropriate to review the present mechanism concerning the modes of benefits payment allowed at retirement and whether new grounds for early withdrawal of MPF benefits should be added to the existing legislative framework to cater for the evolving needs of scheme members. - Mr Rimsky Yuen, Chairman of the Working Group on Review of Withdrawal of MPF Benefits On 16 December 2011, we started an open consultation focusing on the two proposals. By the end of the consultation period on 31 March 2012, we received 287 responses which were largely in support of the proposals. We are consolidating the comments collected and preparing a report and recommendations to the Government for consideration. The Consultation Paper gives details on the background of the MPF System, overseas pension systems, the various options covered in MPFA s review, and the guiding principles used to evaluate those options. Mandatory Provident Fund Schemes COMPENSATION FUND Under the MPF legislation, an MPF Schemes Compensation Fund has been set up for the purpose of compensating scheme members for losses of accrued benefits that are attributable to misfeasance or illegal conduct committed by MPF trustees or other persons concerned with the administration of those schemes. The Government injected $600 million into the Compensation Fund as seed money and MPFA has been collecting an annual levy at the rate of 0.03% of the net asset value of MPF assets from trustees for the Fund since the inception of the MPF System. As the Compensation Fund had accumulated a considerable reserve with no claim having ever been received, we reviewed its optimum reserve level. On 21 November 2011, we briefed the Legislative Council Panel on Financial Affairs on the review results and proposed a mechanism for the suspension and resumption of the Compensation Fund levy. Under the proposal, the reserve level of the Compensation Fund is to be set at a range between $1 billion (floor level) and $1.4 billion (maximum level), and the levy will be suspended when its reserve reaches the maximum level and resumed when it falls below the floor level. The proposed levels have taken into account the more likely risks which may occur in the MPF System and which may result in claims against the Compensation Fund. The proposal seeks to avoid contributions and earnings being unnecessarily diverted away from scheme members accounts as the levy is deducted from funds invested into by scheme members. This will benefit scheme members by reducing scheme expenses. The proposal is set out in the Mandatory Provident Fund Schemes (General) (Amendment) Regulation 2012 for approval by the Legislative Council. As at 31 March 2012, the balance of the Compensation Fund was $1.64 billion, which was above the proposed maximum level. Subject to the Legislative Council s approval of the amendments within the legislative session, the levy suspension arrangement is expected to come into operation in the third or fourth quarter of Terminal illness refers to an illness that is life endangering, such that the remaining life expectancy of the individual will be reduced to a specified period. Annual Report 2011/12 33

36 Refining the Regulatory Framework (cont d) OTHER LEGISLATIVE AMENDMENTS Protection of Accrued Benefits In consultation with the Government, the Mandatory Provident Fund Schemes (Amendment) Bill 2011 was introduced into the Legislative Council seeking to clarify that in the event of bankruptcy of an MPF scheme member, the accrued benefits derived from mandatory contributions and held in an MPF scheme of the member shall not vest in the trustee-in-bankruptcy. The Bill was passed on 4 May 2011 and the amendments came into operation on 13 May Deterrent Effect against Default Contributions We have developed legislative amendment proposals to enhance the deterrent effect against default contributions by employers by making an employer s failure to pay mandatory contributions a continuous offence, and making an employer s failure to pay any sum payable under tribunal or court awards a criminal offence. The relevant proposals are incorporated in the Mandatory Provident Fund Schemes (Amendment) (No. 2) Bill 2011, which was introduced into the Legislative Council on 14 December The Bill also covers proposed legislative amendments to put it beyond doubt the power of MPFA to operate an electronic platform and mandate its use by trustees in transmitting data on scheme members election of transfer of accrued benefits. Details of the electronic platform can be found in the chapter Preparing for the Implementation of the Employee Choice Arrangement. INFORMATION DISCLOSURE To facilitate scheme members management of their MPF accounts, we continued with the project to improve disclosure of information. As one of the early outcomes of the project, in March 2011, we published a booklet Getting Information about Your MPF which sets out in summary form where scheme members can get different types of information about their MPF accounts and schemes. Currently, to provide scheme members with more useful information to facilitate their decisions in retirement planning and in choosing suitable MPF trustees and schemes, we are developing two new MPF calculators for the projection of benefits and total fee impacts and also a Service Comparative Platform to compare the services offered by different trustees. A booklet about where different types of MPF information can be found GUIDELINES AND CODES We issue MPF Guidelines and Codes to elaborate on and support the legislative requirements, hence facilitating compliance with the MPF and ORSO legislation. As at 31 March 2012, 65 sets of Guidelines and three Codes were in force. During the year, we revised 10 sets of Guidelines, mainly to: 1. reflect the amendments to the minimum and maximum levels of relevant income for MPF contribution purposes; 2. update the relevant lists to reflect changes in the approved central securities depositories, approved stock exchanges and unit trusts approved by MPFA; and 3. specify the strengthened reporting requirement on reserving information of approved pooled investment funds offering investment guarantee. All the Guidelines and Codes issued by MPFA are available on its website for public viewing. 34 Mandatory Provident Fund Schemes Authority

37 Protecting the Interests of Scheme Members OVERVIEW Our role Monitor enrolment in MPF schemes and withdrawal of MPF accrued benefits Handle and investigate complaints against non-compliant employers Take enforcement actions against non-compliance and recover default MPF contributions on behalf of scheme members Enhance the image of MPFA as a law enforcer and promote the understanding of MPF legislation In , we Took enforcement actions against non-compliance. Highlights are as follows: a) Number of proactive inspections conducted at employment establishments b) Number of financial penalty notices issued to employers 60 c) Number of summonses applied in respect of non-compliance including default contributions and non-enrolment d) Number of claims filed at the Small Claims Tribunal, District Court and High Court (Number of employees involved) e) Amount of default MPF contributions recovered through the courts, or by persuasion and counselling of the employers concerned (3 442) $164.2 million Stepped up enforcement against non-compliant self-employed persons and scheme members who made false statements to withdraw their accrued benefits on the grounds of permanent departure from Hong Kong Developed legislative amendment proposals to enhance the deterrent effect against default contributions by employers Launched on MPFA s website the Non-Compliant Employer and Officer Records Promoted awareness and understanding of MPF requirements by producing a TV drama series on common MPF offences and MPFA s enforcement actions, and uploading landmark enforcement cases in the Enforcement Corner on MPFA s website Annual Report 2011/12 35

38 Protecting the Interests of Scheme Members (cont d) ENROLMENT At present, close to 90% of the working population in Hong Kong are under the coverage of MPF or other retirement protection schemes. Details are as shown in the following figures. Employed Population by Type of Retirement Schemes (as at 31 March 2012) 71% Joined MPF schemes 14% Joined other retirement schemes (MPF exempted ORSO schemes or statutory pension plans) 11% Exempt from the MPF System (employed persons aged below 18 or above 65, domestic employees and self-employed hawkers, etc) 4% Should join but have not yet joined any MPF schemes Participation rates in the MPF System remained high throughout the year. As at 31 March 2012, the enrolment rates 1 with number of participating members are as follows: Employer Relevant Employee Self-employed Person Number (to the nearest 100) Enrolment Rate 98% 99% 69% Detailed statistics on enrolment are included in Part A of the Statistics section. ENQUIRIES AND COMPLAINTS In , we received: Enquiries Majority were about transfer or withdrawal of benefits, contribution arrangements, and enrolment arrangements Complaints Majority were about default contributions and non-enrolment. Statistics relating to enquiries and complaints are in Part E of the Statistics section. ENFORCEMENT ACTIONS AGAINST NON-COMPLIANCE Most employers are law-abiding. Unfortunately, there are still some who seek to evade their MPF obligations by not enrolling their employees in any MPF scheme or not making mandatory contributions for them. We continue to step up enforcement of the MPF legislation against non-compliance to protect the interests of scheme members. Proactive Inspection Proactive inspection to check on MPF compliance is one of the enforcement measures to uncover non-enrolment and default contribution cases. In , we conducted proactive inspections at employment establishments to 1 The source of the figures and the basis of the estimation are detailed in Part A of the Statistics section. 36 Mandatory Provident Fund Schemes Authority

39 check on non-enrolment and default contributions. Major targets included catering establishments, retail outlets and construction sites. Debt Recovery Actions In , we recovered $164.2 million in default MPF contributions. Debt recovery actions taken are summarized below: Debt Recovery Actions In , A surcharge calculated at 5% of the default contribution amount is imposed on employers who failed to make MPF contributions for their employees. The surcharges received are credited into the relevant employees MPF accounts. When a case is substantiated, we persuade the employers concerned to honour their obligations and, where appropriate, initiate civil claims against them. Where sufficient evidence is available, we refer non-compliant cases to the Department of Justice and the Police for criminal prosecution. The MPFA is empowered under the MPF legislation to impose financial penalties on defaulters. We issued surcharge notices to employers with default cases reported by trustees. We completed investigations into about employers regarding contributions and surcharges in arrears. On the substantiated defaulted cases, we filed civil claims: with the no. of claims on behalf of High Court 1 63 employees District Court employees Small Claims Tribunal employees We made 165 applications on behalf of employees to liquidators in respect of default contribution cases. We applied for summonses in respect of default contribution cases and 95 summonses in respect of non-enrolment cases: 101 employers (involving summonses) who had taken plea by 31 March 2012 pleaded guilty or were convicted. The total amount of fines imposed was $3,149,500; and 15 directors/managers of limited companies (involving 116 summonses) were convicted and fined between $2,700 and $47,000 each. We applied for 15 court orders to compel convicted employers to rectify their non-compliance with enrolment and contribution requirements. We imposed 60 financial penalties of $5,000 for each case or 10% of the outstanding MPF contribution, whichever was the greater, on 51 employers who were mainly repeat defaulters. During the year, an employer was given a 60-hour community service order, and a company director was imposed a two-month jail sentence (suspended for 12 months) upon conviction of MPF offences. These two landmark cases deliver a strong message that defaulting on MPF contributions is a serious crime. The sentences will likely be an effective deterrent to offenders. Annual Report 2011/12 37

40 Protecting the Interests of Scheme Members (cont d) Enforcement Actions against Target Groups Self-employed persons ( SEPs ) We continued to take measures to enhance the compliance of SEPs. Letters and leaflets were sent to SEP groups to remind their members of SEP s MPF obligations. We proactively inspected suspected non-compliant SEPs and tackled SEPs with default contribution reported by trustees and followed up any non-compliant instances identified. Scheme members making false statements to withdraw accrued benefits on grounds of permanent departure from Hong Kong Scheme members who make false declarations in order to withdraw MPF benefits on grounds of permanent departure from Hong Kong 2 are another target of our enforcement efforts. During the year, we prosecuted 45 scheme members for making false statements in this regard. By 31 March 2012, 21 of them pleaded guilty or were convicted and were fined between $4,000 and $12,000 each, and the other cases were pending court judgment. Statistics on enforcement actions taken in are in Part F of the Statistics section. DETERRENT TO NON-COMPLIANCE Legislative Amendment Proposals We developed legislative amendment proposals to enhance the deterrent effect against default contributions by employers. The relevant provisions, making an employer s failure to pay mandatory contributions a continuous offence and making an employer s failure to pay any sum payable under tribunal or court awards a criminal offence, have been incorporated in the Mandatory Provident Fund Schemes (Amendment) (No.2) Bill 2011, which was introduced into the Legislative Council on 14 December The scrutiny of the Bill is in progress. Non-Compliant Employer and Officer Records On 23 May 2011, we launched an online section on Non-Compliant Employer and Officer Records in the Enforcement Corner on MPFA s website. From the database, members of the public can view and search for information on employers and officers with MPF non-compliance records resulting from legal proceedings initiated by MPFA. The launch of the records aims to enhance the deterrent effect against non-compliant employers and to increase the transparency of MPFA s enforcement actions. There are four categories of records: 1. Criminal conviction and civil award/judgment records 2. Criminal conviction records only 3. Civil award/judgment records only 4. Criminal conviction records of repeat offenders Non-Compliant Employer and Officer Records available on MPFA s website As at 31 March 2012, the database contained non-compliance records (comprising 628 criminal conviction records and civil awards or judgments). 2 Under the current MPF legislation, the benefits accrued in an MPF scheme member s account are to be preserved until retirement. Permanent departure from Hong Kong is one of the circumstances under which a scheme member may apply for early withdrawal of accrued benefits. 38 Mandatory Provident Fund Schemes Authority

41 Promotion of Understanding of MPF Requirements We notice that non-compliance is sometimes due to misunderstanding and/or unawareness of MPF requirements. While we strive to enforce the MPF legislation, we also help members of the public better understand the legislation. TV drama series on common MPF offences Jointly produced with the Television Division of the Radio Television Hong Kong, a TV drama series on common MPF offences and MPFA s enforcement actions was launched to promote awareness and understanding of MPF requirements. The series was broadcast on four local television channels and is available on the websites of MPFA and Radio Television Hong Kong. Episode 1 Episode 2 Episode 3 An employer failed to make mandatory contributions for her employee even though she has deducted an amount equivalent to the employee s mandatory contributions from his wages An employer evaded MPF obligations by employing his employee under short-term contracts of 59 days each An employer evaded MPF obligations by asking his employee to sign a self-employment contract Episode 4 Episode 5 An MPF intermediary requested scheme members MPF preserved account information from MPFA without clients authorization A person made a declaration to claim MPF benefits on the grounds of permanent departure from Hong Kong for the second time Enforcement Corner on MPFA s website We continued to upload landmark enforcement cases and explain common misconceptions about MPF obligations and requirements in the Enforcement Corner on MPFA s website to promote understanding of the MPF legislation. Intelligence Exchange with Stakeholders To enhance the efficiency of our enforcement efforts, we maintained close communication and exchange intelligence with relevant stakeholders to strengthen deterrence against non-compliant employers. We also maintained close contact with labour unions to monitor and keep abreast of the situations of specific industries, especially those which tended to have more non-compliant cases, including the catering, retail, cleaning, security and construction industries. Enforcement Strategies Internally, we review our strategies and measures annually in the light of operational experience. During the year, effective strategies and measures were maintained and refined strategies were adopted. We believe that these efforts, coupled with publicity and education activities, have contributed to the drop in the total number of complaints received in (a decrease of 10% when compared with the figure in ). Annual Report 2011/12 39

42 Supervising the Industry OVERVIEW Our role Approve and supervise MPF trustees Register and approve MPF schemes and funds Register and supervise MPF intermediaries Supervise the operation of occupational retirement schemes ( ORSO schemes ) In , we Required all trustees to assess the possible impact of adverse developments in the global financial markets on the operation of MPF funds under their trusteeship Commenced a consultancy study on trustees administration costs Directed and guided MPF trustees to prepare for the implementation of the amended minimum and maximum levels of relevant income Continued to work with MPF trustees to prepare for the implementation of Employee Choice Arrangement ( ECA ) (please refer to the chapter Preparing for the Implementation of the Employee Choice Arrangement ) Conducted off-site reviews of MPF trustees returns and reports and on-site visits to assess trustees capability to implement new MPF initiatives Devised training plans and developed training materials to enhance the training of MPF intermediaries on the MPF System, ECA and the proposed regulatory regime for intermediaries and organized train-the-trainer workshops As at 31 March 2012, There were 19 approved MPF trustees, 40 registered MPF schemes, 445 approved constituent funds and 297 approved pooled investment funds Aggregate net asset value of all MPF schemes was $ billion There were registered MPF intermediaries, comprising 486 corporations and individuals There were ORSO schemes The total asset size of ORSO registered schemes was $ billion SUPERVISION OF APPROVED MPF TRUSTEES In , the number of MPF trustees remained unchanged from last year at 19. A list of the trustees and their background as at 31 March 2012 is at Appendix 2. We monitor MPF trustees compliance with statutory and regulatory requirements on an on-going basis. At the same time, we maintain a regular dialogue with the trustees on MPF-related issues and work closely with them to pursue initiatives to enhance the MPF System. During the year, the Managing Director of MPFA held three meetings with the 40 Mandatory Provident Fund Schemes Authority

43 chief executive officers of the trustees to brief them on the development of the MPF System and reform initiatives, engage them in MPFA s major projects, and understand their views on and concerns about the policies and operation of the MPF System. Separately, the Trustees Operations Liaison Group, comprising representatives from trustees and MPFA, met three times during the year to discuss the development of information systems and MPF scheme operational issues that are of common interest across the industry. We also conducted individual meetings with trustees on a regular basis to discuss governance, compliance, operational and trustee-specific issues. Fund Governance and Investment Compliance During the year, we continued to review the fund governance and investment compliance issues relating to MPF funds. We collected information on the portfolio holdings of MPF funds from all trustees and conducted compliance checking of MPF investments. We organized two sharing sessions with representatives of trustees and investment managers to keep the industry informed and up-to-date on the development of MPF legislation. Meanwhile, we are in the process of establishing a mechanism for monitoring the performance of individual MPF funds. With the help of this mechanism, we will analyze and assess fund performance and identify governance issues that call for improvement. In 2011, the unfortunate catastrophe in Japan, the downgrade of the sovereign credit ratings of various countries and the sovereign debt crisis in the Eurozone had produced knock-on effects on the global financial markets. The MPF market, as an integral part of Hong Kong s financial market, was inevitably affected. In response, we required all trustees to assess the possible impact of adverse developments in the global financial markets on the operation of the MPF funds under their trusteeship. Thus far, there was no irregularity reported by the trustees on their MPF operations. We also required trustees to take appropriate actions proactively, such as liaising with their appointed investment managers to understand the actions that they would take in view of the market situation, to ascertain if there were any potential compliance issues, and to formulate and implement contingency plans in order to safeguard members interests. Streamlining and Standardization of Scheme Administration The MPF System involves scheme administration such as the processing of contributions, the reporting of default contributions, and the processing of fund transfer and withdrawal requests. Over the years, we have been working closely with the trustees to review major functions in scheme administration and explore areas for simplification and standardization to further enhance efficiency. For example, we studied the handling and reporting of default contributions and appeals, and made a number of improvement recommendations to trustees. According to our assessment, the costs of scheme administration constitute a significant part of the fees charged by MPF schemes. To understand and analyze trustees administration processes and costs in greater depth, we appointed Ernst & Young Advisory Services Limited to conduct an independent consultancy study. The study will help identify measures to further reduce costs. The consultant is expected to produce a report to MPFA around mid The level of fees of MPF schemes has always been a matter of great public concern. We believe there is still room for further fee reductions, especially since the value of assets in the MPF System has more than doubled over the past five years. We hope the consultancy study will assist MPFA in understanding more about trustees operating costs and in proposing measures to reduce the costs to give more room for further reductions in fees. - Hon Anna Wu, MPFA Chairman and Chairman of the Working Group on MPF Reform Issues Annual Report 2011/12 41

44 Supervising the Industry (cont d) Implementation of the Amended Minimum and Maximum Relevant Income Levels After the Legislative Council had passed the proposal to increase the minimum level of relevant income to $6,500, we formed a working group with trustees to map out the actions to be taken and the timetable in preparation for the change. We conducted on-site visits to them to assess their readiness in handling contributions upon the implementation of the new minimum relevant income level on 1 November The scope of the review included project governance, scheme administration system, operation procedures, customer service tools (such as payroll software), communication with MPF clients and training provided to MPF intermediaries and staff. Based on the assessment, we concluded that trustees were ready for the implementation. Operations turned out to be smooth when the change took effect. Subsequent to the passage of the legislative amendment to increase the maximum level of relevant income to $25,000 with effect from 1 June 2012, we started communication with the trustees with regard to the implementation of the new level, and arranged for reviews of their readiness. We will continue to supervise the implementation process. Implementation of the Employee Choice Arrangement ( ECA ) 1 Our preparatory work for the implementation of ECA continued in the year. The preparatory work included setting up the requisite systems and administrative processes, which involved trustees efforts and cooperation. On-site visits to trustees were conducted to ensure their readiness for the implementation. Details of the work are set out in the chapter Preparing for the Implementation of the Employee Choice Arrangement. On-going Monitoring We continued to adopt a proactive and risk-based supervisory approach and refine the risk profile of each trustee as a basis for monitoring and supervising trustees via on-site visits, thematic reviews of specific areas of operation and off-site monitoring. Our off-site monitoring effort encompasses the investigation of complaints and breaches, the review of regular returns, audited financial statements and reports in respect of trustees and the schemes under their trusteeship. From 1 April 2011 to 31 March 2012, we assessed 30 and 33 breach cases related to non-compliance with scheme administration and investment requirements respectively. We ensured that all cases were properly rectified in a timely manner, appropriate compensation was made to the affected MPF members/funds and effective preventive measures were implemented by trustees and their service providers to prevent recurrence. These breaches were reported by trustees themselves or identified by MPFA through on-going monitoring, enquiries or complaints received. We received 269 complaints (compared with 284 in the previous financial year) against MPF trustees, most of which were related to customer service and handling of contribution and transfer requests by scheme administrators. We have been taking actions to follow up and resolve the issues with the trustees concerned. Supervision of MPF Intermediaries Registration of MPF Intermediaries MPF corporate and individual intermediaries are required to register with MPFA before they can sell MPF products or advise on MPF business. Their registration used to be valid for three years. With effect from 1 January 2012, a continuous registration system has been adopted, under which MPF intermediaries no longer need to apply for renewal of registration, but they are still required to lodge annual returns with MPFA and to comply with the Continuing Professional Development ( CPD ) requirements. While we no longer issue MPF certificates, individual 1 An arrangement to allow employees to elect to transfer the accrued benefits derived from employee mandatory contributions made during current employment and held in a contribution account under an MPF scheme to an MPF scheme of their own choice at least once per calendar year. 42 Mandatory Provident Fund Schemes Authority

45 intermediaries still have to print their MPF registration numbers on business cards to facilitate verification of their MPF registration status. Separately, members of the public can check MPF intermediaries registration status through the public register on MPFA s website or by calling MPFA s hotline. During the year, MPFA processed new applications for registration as an MPF intermediary. As at 31 March 2012, there were registered MPF intermediaries (compared with last year), comprising 486 corporations and individuals. The number of MPF intermediaries is on the rise, while their distribution among the three industries (banking, insurance and securities) has remained more or less constant. Statistics on intermediaries are in Part C of the Statistics section of this report. Regulatory Framework for MPF Intermediaries MPF intermediaries are licensed or authorized by at least one of three financial regulators, i.e. the Hong Kong Monetary Authority, the Securities and Futures Commission, and the Insurance Authority. To minimize duplication of regulatory efforts, we adopt a decentralized and coordinated approach in regulating MPF intermediaries. In order to better protect scheme members interests, legislative amendments have been proposed to reinforce the existing administrative regulatory regime for MPF intermediaries by statute. The proposed regime is broadly similar to the existing one. The MPFA will be the sole authority to register MPF intermediaries and is empowered to issue guidelines on compliance with statutory requirements, as well as to impose disciplinary sanctions against non-compliant intermediaries. Moreover, MPFA will handle complaints on MPF sales and marketing activities and may refer cases to the relevant frontline regulators, where appropriate, for investigation. We have started to gear ourselves up for these expanded functions under the new regime. Supervision and Training of MPF Intermediaries To maintain their professional competencies in MPF business, all MPF intermediaries must comply with the CPD requirement by undertaking a minimum of 10 hours of CPD activities in each calendar year, with at least two hours devoted to core subject areas. Non-compliance with the CPD requirement may result in de-registration of the intermediary concerned. Five institutions or professional bodies as listed in Appendix 4 continued to be recognized as core CPD activity providers in the year. As at 31 March 2012, there were 30 programmes recognized by MPFA as core CPD courses. We continued to carry out quality assurance arrangements on these courses, which included vetting course materials, visiting classes to ensure quality delivery of these courses and holding regular meetings with CPD course providers. During the year, we conducted 36 class visits for CPD training courses. In February 2012, we conducted three sharing sessions with course providers and trustees to explain the relevant training course requirements and best practices. It is expected that the introduction of ECA will encourage more MPF marketing and selling activities aimed at individual scheme members. Given the rigorous investment rules and homogeneity of MPF products, the opportunity for mis-selling MPF products is considered to be low, but we nevertheless continued to work on minimizing the risk of this happening. We worked with core CPD course providers especially on the provision of training to MPF intermediaries focusing on ECA and the conduct of MPF intermediaries. All MPF individual intermediaries are expected to complete the training on ECA before the launch of ECA. Details can be found in the chapter Preparing for the Implementation of the Employee Choice Arrangement. In respect of the MPF intermediary examination, which a person is required to pass before becoming a registered MPF intermediary, we are updating the relevant study notes and examination questions to take account of ECA and the new regulatory regime. Annual Report 2011/12 43

46 Supervising the Industry (cont d) REGISTRATION AND APPROVAL OF MPF SCHEMES AND FUNDS As at 31 March 2012, there were 40 registered MPF schemes, 445 approved constituent funds and 297 approved pooled investment funds. The number of constituent funds available under each registered scheme ranged from 3 to 26 (see Figure 1) and the aggregate net asset value of all MPF schemes was $ billion. Figure 1. Number of constituent funds per MPF scheme as at 31 March 2012 No. of Schemes Over 15 No. of Constituent Funds A list of the registered schemes and their respective underlying constituent funds is at Appendix 3, and more statistics on MPF schemes and funds are included in Part B of the Statistics section. There was an increase in the number of constituent funds (from 422 in March 2011 to 445 in March 2012). Table 1 shows the statistics on the registration and approval of MPF schemes and funds during the year. Table 1. Processing statistics on registration and approval of MPF schemes and funds Number as at 31 March 2011 Terminated/ Withdrawn during the year Registration/ Approval during the year Number as at 31 March 2012 Registered Schemes Master Trust Schemes Industry Schemes Employer Sponsored Scheme Approved Constituent Funds Approved Pooled Investment Funds Approved Index-Tracking Collective Investment Schemes We continued our work to enhance the protection of scheme members MPF assets invested in insurance policy Approved Pooled Investment Funds ( APIFs ). By the end of 31 March 2012, all insurance policy APIFs without guarantee (Class H) had been terminated. For insurance policy APIFs that provide a guarantee (Class G), we required the relevant insurers to make additional disclosure in scheme offering documents. We further imposed an approval condition requiring asset localization 2 for these APIFs as from 31 December Asset localization for these APIFs was completed as of 31 December In addition, all insurers operating Class G APIFs are required to increase the frequency of reports on reserving requirements from half-yearly to quarterly and the reports have to be submitted to both MPFA and the Insurance Authority. The first submission took place from the financial quarter ending after 30 June The underlying investment of the Class G APIFs should consist only of investments held in Hong Kong. Investments held in Hong Kong include units of an APIF which is an authorized unit trust and established in accordance with the Mandatory Provident Fund Schemes Ordinance. 44 Mandatory Provident Fund Schemes Authority

47 Table 2 shows a breakdown of APIFs by fund structures. Table 2. Analysis of approved pooled investment funds (by fund structures) Number as at 31 March 2011 Unit Trust Insurance Policy Total Number as at 31 March 2012 Number as at 31 March 2011 Number as at 31 March 2012 # Number as at 31 March 2011 Number as at 31 March 2012 Umbrella funds Internal portfolios Feeder funds Portfolio management funds Total # All are Class G insurance policy APIFs. Fees and Charges of MPF Funds We persistently urge trustees to reduce fees and introduce low-cost MPF schemes and funds. The reduction in fees of existing funds and introduction of low-cost funds by some trustees in the year have demonstrated that the industry responded positively to our request and public demand. Furthermore, many trustees also provide rebates, such as those in the form of bonus units, tantamount to giving a fee discount to selected customers. Also, we have adopted a new policy under which applications for the addition of constituent funds to a scheme must show that the proposed addition is in scheme members interests, e.g. a reduction in fees compared to a similar fund. Over the years, we note a steady reduction in the average fund expense ratios 3 ( FER ). The average FER of individual constituent funds with financial year-end dates falling within the period from 1 July 2010 to 30 June 2011 was 1.74%. This represents a fall of 16% from the average FER of 2.06% of individual constituent funds with financial year-end dates falling within the period from 1 October 2005 to 30 September 2006 (for which period the ratio was first reported). We will continue to take supervisory actions to encourage further fee reduction at a faster pace. REGULATION OF OCCUPATIONAL RETIREMENT SCHEMES The MPFA is the Registrar of Occupational Retirement Schemes. As at 31 March 2012, there were ORSO schemes. The total asset size of ORSO registered schemes was $ billion. MPF Exempted ORSO Schemes Prior to the launch of the MPF System, employers operating ORSO schemes had the option to apply for exemption from MPF requirements. Existing members of MPF exempted ORSO schemes had a one-off option to choose between their existing ORSO scheme and an MPF scheme. For those ORSO schemes which did not obtain MPF exemption status, employers may choose to retain them as top-up schemes, freeze or terminate them. During the year, 143 MPF exempted ORSO schemes, covering about 900 members, relinquished their exemption status. The number of MPF exempted ORSO schemes as at 31 March 2012 was 4 062, covering about employers and scheme members. Among these MPF exempted ORSO schemes, 279 were ORSO exempted schemes and were ORSO registered schemes. 3 Fund Expense Ratio is a ratio that measures the expenses of an MPF fund as a percentage of fund size. Annual Report 2011/12 45

48 Supervising the Industry (cont d) Termination of ORSO Schemes During the year, 158 ORSO registered schemes and 90 ORSO exempted schemes (comprising 137 MPF exempted schemes and 111 non-mpf exempted schemes) were terminated. In addition, 29 ORSO registered schemes were de-registered and the exemption certificates of 16 ORSO exempted schemes were withdrawn in August As at 31 March 2012, 79 ORSO schemes (including 46 MPF exempted schemes and 33 non-mpf exempted schemes) were in the process of being terminated, pending the transfer of scheme assets and/or provision of the necessary information to MPFA. After the termination of these schemes, the number of remaining ORSO schemes would be 5 254, including MPF exempted schemes (covering about scheme members) and non-mpf exempted schemes (covering about employees). Based on the information obtained from the termination notices submitted and the latest annual returns of ORSO registered schemes, the asset arrangements on the termination of these ORSO registered schemes are set out in Table 3. Table 3. Asset arrangements on termination of the ORSO registered schemes effected in the period from 1 April 2011 to 31 March 2012 ORSO Asset Arrangements Number of Schemes % Asset Size ( million) % Transferred to MPF scheme Transferred to another ORSO scheme Paid out to scheme members Total 157 # # One of the 158 ORSO registered schemes terminated has no asset on termination. Funding of ORSO Schemes The MPFA monitors the funding status of ORSO schemes by examining their annual returns and audited financial statements. In the case of defined benefit schemes, actuarial certificates must be supplied to MPFA at least once every three years. According to the reports received up to 31 March 2012, six out of 254 defined benefit schemes were under-funded, covering around 500 scheme members. The asset size of these schemes was $1.1 billion and the total shortfall was $0.3 billion, representing about 25% of the total assets of these under-funded schemes. For comparison, a year ago, there were 10 under-funded defined benefit schemes with a total shortfall of $0.3 billion, representing about 15% of the total assets of $1.9 billion of these under-funded schemes. Shortfalls in the six under-funded schemes are all caused by investment loss. The relevant employers are required to make up the shortfall in funding by making either a lump sum contribution or regular monthly contributions within three years and to submit actuarial certificates annually until the schemes are fully funded. We have been monitoring the situation closely to ensure that contributions are made in accordance with the terms and rules of the schemes and, if applicable, the actuarial recommendations. Statistics and other Operation Information A list of the corporate administrators who administer pooling agreements for ORSO schemes is at Appendix 5. Statistics on ORSO schemes are set out in Part D of the Statistics section. Information on other operations of MPFA as the Registrar of Occupational Retirement Schemes is presented in Appendix Mandatory Provident Fund Schemes Authority

49 Educating the Public and Reaching out to the Community OVERVIEW Our role Educate the public on the MPF System and MPF investment Foster continuous community support for the MPF System In , we Rolled out new programmes under the MPF Investment Education Campaign to enhance the public s knowledge of MPF investment Educated the younger generation on the merits of early financial planning through a variety of school activities and online publicity Organized outreach programmes and seminars to deliver information on the MPF System and MPF investment to different target groups and the community Published close to 400 articles and press releases on enforcement and other MPF topics MPF INVESTMENT EDUCATION Making Informed Decisions for Your MPF Life continued to be our key educational theme for With this theme, programmes were carried out under the MPF Investment Education Campaign ( Campaign ) to equip members of the public with the basic knowledge for making informed decisions in their lifelong MPF investment journey at six major decision points: Which fund(s) should I choose? Which MPF scheme should I choose? Should I make additional MPF contributions? What should I do with my MPF accrued benefits when I change employers? When and how should I adjust my MPF fund choices? What should I do with my MPF accrued benefits when I retire? During the year, a wide range of programmes were organized under the Campaign. A video series of different durations on the MPF investment decision-making process continued to be telecast on various platforms including TV channels, TV panels in public transport vehicles and stations and in the lobbies of commercial buildings, outdoor video walls and a popular online portal. On television, a segment of eight episodes of an interactive game show with questions and explanations on hot topics about MPF investment were run on two pay TV channels. Educational messages on the MPF investment decision-making process were broadcast on all three local radio stations, including Cantonese and English channels, through a broad variety of programmes such as radio drama, game segments, interview-cum-quiz segments hosted by a famous financial expert, and time-check messages. To achieve a cross-promotion effect, different formats Through an online game, scheme members learn more about the six major decision points in their lifelong MPF investment journey of publicity and educational materials were published in tabloids, selected paid newspapers and magazines. Eyecatching online publicity, outdoor video walls, bus-body and seat-back advertisements on buses were also deployed to reinforce public awareness. An online game was launched, in which key investment education messages like factors to consider in selecting MPF funds and MPF schemes were conveyed. Annual Report 2011/12 47

50 Educating the Public and Reaching out to the Community (cont d) We developed a series of comic strips featuring a popular local comic character Maggiology to publicize investment education messages in an interesting manner appealing to the layman. The comic strips were published on popular websites, smart phone applications, out-of-home platforms and in the print media. MPF investment comic strips featuring the character Maggiology are well received by readers To further reinforce public understanding of the key features and relative risk levels of MPF products, a new series of print advertisements on members of the JJ Five Band, the icons that represent the five major types of MPF funds, was developed and published in different media, including newspapers, a magazine and escalator panels in MTR stations. A new leaflet, JJ Five Composing the Future with You, and an enhanced version of the MPF Fund Booklet featuring JJ Five, with details on the features of MPF funds and highlights of the key issues to note when investing in various types of MPF funds, were also published. JJ Five posters on MTR escalator panels and new releases of the JJ Five publications highlight the salient features of five major types of MPF funds A campaign was conducted during the year to alert scheme members to some common misunderstanding about MPF investment, with the publication of a new leaflet Get to know MPF Investment and new FAQs on MPF investment on MPFA s website. The leaflet Summary of Fee Comparative Platform on MPF Funds was issued on a quarterly basis to provide updates on summary statistics on fees and charges of MPF funds. All these publications were widely distributed and made available on MPFA s website. To enable more direct interaction with scheme members, four roving exhibitions, with free MPF consultation services and games, were run in high-traffic shopping malls during the year. Two public seminars were co-organized with a local university and a media partner respectively to educate participants on the factors to consider when deciding on how to invest their MPF contributions. At a joint seminar organized with the Open University of Hong Kong, the speaker gave a presentation on MPF investment strategy Certified Financial Planners helped out at a roving exhibition to provide free consultation service to the public on MPF investment and retirement planning A visitor at a roving exhibition learnt how to manage MPF benefits after retirement 48 Mandatory Provident Fund Schemes Authority

51 OUTREACHING PROGRAMMES To broaden and consolidate support for the MPF System, we continued to communicate and organize joint programmes with stakeholders, including employer groups, labour unions, community organizations, professional bodies, political parties and District Councils. MPF messages were disseminated at the community level through MPF district carnivals and tea gatherings organized in partnership with political parties. New activities, such as quizzes, were introduced on these occasions to include more MPF elements and achieve better educational effect for the audience. We also gave MPF talks and set up enquiry counters jointly with District Council members, and participated in activities organized by labour unions and trade associations to reach out to their members. Further outreaching activities were organized targeting selfemployed persons including mini-bus and taxi drivers and employees and employers under the Industry Schemes to remind them of their MPF obligations. As a new initiative, we collaborated with several vocational training organizations and industry bodies, to reach out to students who will soon enter the catering and construction industries. District carnivals co-organized with political parties to promote the MPF System in the community Spreading MPF messages to the employers and employees participating in Industry Schemes, and to the self-employed persons in the transportation industry Annual Report 2011/12 49

52 Educating the Public and Reaching out to the Community (cont d) In collaboration with non-government organizations, we disseminated MPF messages to job-seekers and employees at the courses run by these organizations. We continued to organize seminars for newly established small and medium-sized companies to reinforce the employers knowledge of MPF compliance requirements. Practical information on how to enrol employees into MPF schemes and make contributions was given in the seminars. During public events, we recruited members of the public to become Friends of MPF and sent them MPF information from time to time. To strengthen two-way communication with them, we published four issues of the MPFA Newsletter to provide updates on MPFA s work and useful information about the MPF System. In addition, a special issue of the Newsletter was released in April 2011 to explain the findings of the 10-year investment performance review of the MPF System. We also held a seminar with the theme Planning for Your Desired Retirement Life as the first activity specially organized for Friends of MPF. MPFA Newsletters were sent to Friends of MPF to enhance their understanding of the work of MPFA and the MPF System EDUCATING THE YOUNG In the year, we continued to organize a variety of programmes for different youth groups from kindergarten kids to students of tertiary institutions to educate youngsters and their families on the importance of saving for the future and to disseminate MPF messages. Where possible, MPF investment education messages were incorporated into these programmes to create synergy and enhance the overall impact of our education efforts. With the support of the Education Bureau, we organized parenting programmes for primary school students and kindergarten kids respectively. The purpose of the programme for kindergarten kids was to spread money management concepts and MPF messages to the kids, their parents and teachers. A storybook was distributed to over half of the kindergarten kids in Hong Kong, and an inter-school acting competition and an online parenting photo competition were held. Workshops were conducted to equip the children with acting skills and money management concepts through interactive games. The recognition programme for primary school students was held to educate students about proper attitudes towards money management and relevant basic skills, and to disseminate MPF messages to their parents and teachers. Participants were invited to complete a series of tasks set out in a task book and join a competition to share in drawing or writing the merits of saving for the future or their experience in money management. A game-day-cum-prizepresentation ceremony was held to wrap up the programme. Lovely kindergarten kids displayed their singing and dancing talents at the Acting Competition with the theme of money management Primary school students received awards under a Recognition Programme after learning about basic money management skills 50 Mandatory Provident Fund Schemes Authority

53 Under the Skit Programme, 60 performances of interactive drama were staged during the academic year to educate junior secondary school students about the benefits of having an early start on retirement planning, and knowledge of MPF System and MPF investment. To tie in with the requirement of Other Learning Experience of the new senior secondary curriculum, a series of school-based life planning activities targeting senior secondary school students was conducted to let them experience financial planning and MPF investment at different life stages. Ten sessions were held in the academic year. Two publications, My MPF Blog and Embarking on My MPF Journey, tailor-made for senior secondary school students and students of tertiary institutions respectively were produced to prepare them for joining the MPF System in the future. My MPF Blog was distributed to all local secondary school leavers. Posters with money management and MPF messages were distributed to all local secondary schools for display as mini exhibitions. We also contributed articles to the Prospect Guide of Hok Yau Club, whose target readers were Form Seven graduates, to introduce the MPF System. To encourage and facilitate the incorporation of financial planning concepts and MPF knowledge into the teaching of Liberal Studies in secondary schools, two Financial Planning and Personal Development training workshops for teachers were co-organized with the Hong Kong Teachers Centre of the Education Bureau. Meanwhile, a revamped teaching kit was provided to Liberal Studies teachers. The Multimedia Competition on MPF for Students of Tertiary Institutions was co-organized with a radio station to enhance the knowledge of students of tertiary institutions on the MPF System and MPF investment. A thematic webpage was developed to augment the publicity effect of the programme. Multimedia training workshops were organized to equip participants with knowledge on financial planning, MPF investment and multimedia production. A number of initiatives were taken to promote the competition, including online voting for the Most Popular Video on a social networking platform. Senior secondary school students attending the Other Learning Experience programme were intently drawing up the financial plan for different life stages At a roving show of the Multimedia Competition on MPF, university students had fun in deciding the best allocation of their financial resources Activities were launched through a fan page to raise youngsters awareness of money management concepts A total of 30 MPF talks were organized in the year for students of tertiary institutions and youth centres to promote MPF messages and the merits of early retirement planning. At education and job fairs, we staged exhibition booths and conducted seminars to deliver MPF messages to the visitors. As online social media are increasingly popular amongst the younger generation, we communicated messages on money management, MPF System and MPF investment to young people through a fan page launched in March 2011 on a popular social networking platform. Various initiatives were rolled out for the fan page, including a quiz game, a flash game, a blog, a series of creative videos, an online competition on rewriting the ending of the winning video of the Multimedia Competition on MPF, and online voting for the best slogan under the theme Rolling My Money To Generate Compounding Effect. Annual Report 2011/12 51

54 Educating the Public and Reaching out to the Community (cont d) OTHER EDUCATION AND PUBLICITY ACTIVITIES During the year, proactive publicity was given to changes to the MPF System, MPFA s new initiatives, and the roles and functions of the MPF System and MPFA. The matters publicized included: 10-year Investment Performance Review of the MPF System; Amendment of minimum and maximum levels of relevant income for MPF contribution purposes; Non-compliant Employer and Officer Records on MPFA s website; Consultancy study on trustees administration costs; Open consultation on withdrawal of MPF benefits; MPFA s enforcement actions and its enforcement strategies in ; and Employee Choice Arrangement. Publicity was done through contributing articles to various publications, issuing press releases, and launching publicity on different media platforms. Where appropriate, press conferences and press briefings were held, and print advertisements were placed. During the year, we issued more than 170 press releases on MPFA s enforcement actions and various initiatives, and contributed more than 200 articles to newspapers, magazines and the newsletters of trustees and labour unions, covering the MPF System and MPF investment. To help members of the public get a better understanding of the various aspects of the MPF System, a number of thematic campaigns were launched. A campaign was rolled out to educate scheme members on how to manage their MPF accrued benefits when changing employers and to remind them that they have the right to choose the MPF schemes that best suit their needs when managing their preserved accounts. This was also the emphasis of MPFA s booth at the Education and Careers Expo 2012 organized by the Hong Kong Trade Development Council. Another campaign was organized to publicize the rights and responsibilities of self-employed persons under the MPF System. Tailor-made programmes in the form of talks and outreaching activities were rolled out for self-employed persons and Industry Scheme members to enhance their understanding of the MPF System and MPF investment. An online quiz game was designed to educate scheme members on how to manage their MPF benefits when changing jobs The MPFA s booth at the Education and Careers Expo was crowded with visitors who were keen on learning more about MPF Taxi-body advertisements reminded self-employed persons of their MPF obligations Riding on the festive mood of the Chinese New Year, a specially designed JJ Five lucky windmill and a fortune mug with a silicon lid, both carrying the slogans of the six major decision points of an MPF investment journey, were distributed to the public and stakeholders respectively. A list of major public education and publicity activities is set out at Appendix 7. Chinese New Year souvenirs carrying JJ Five characters were produced to disseminate MPF investment messages 52 Mandatory Provident Fund Schemes Authority

55 Preparing for the Implementation of the Employee Choice Arrangement OVERVIEW Our role Prepare for the implementation of the proposal to expand employees control over their MPF investments (known as the Employee Choice Arrangement ) ( ECA ) In , we Devised training plans and developed training materials to enhance the training of MPF intermediaries on the MPF System, ECA and the proposed regulatory regime for MPF intermediaries, and organized train-the-trainer workshops Conducted on-site visits to review the trustees readiness for the implementation of ECA Completed the development of a platform for electronic transmission of data on transfer of accrued benefits between trustees Completed the development of a personal account register Rolled out publicity and communication programmes In order to enhance employees control over their MPF investments, new MPF legislation was enacted to allow employees to transfer the accrued benefits derived from employee mandatory contributions made during current employment and held in a contribution account under an MPF scheme (i.e. original scheme) to an MPF trustee and a scheme of their own choice on a lump sum basis once per calendar year 1. This arrangement is known as the Employee Choice Arrangement ( ECA ). Prior to putting forth the ECA proposal, we have planned to enhance the regulation of the sales and marketing of MPF schemes. As ECA will expand the major selling targets of MPF schemes to cover employees, there is general consensus that it would be prudent to implement ECA after putting in place a statutory regime to regulate the activities of MPF intermediaries. Subject to the passage of the Bill on the regulation of MPF intermediaries within the legislative session, we expect to launch ECA on 1 November Our preparatory work for the launch continued throughout the year. READINESS OF MPF INTERMEDIARIES Since 2009, we have devised comprehensive training strategies to help MPF intermediaries enhance service standards. We have set up a dedicated team to design appropriate training courses to strengthen intermediaries understanding of the MPF System, ECA and the proposed regulatory regime for intermediaries. The training on ECA is conducted in three phases and the respective contents are set out in Table 1. Table 1. Three phases of training on ECA Phase / Time Phase 1 (2009 and 2010) Phase 2 (2011) Phase 3 (2012) Content of training Introduction to the legislation on ECA MPF investment education programme Content and operational details of ECA Case study: relevant guidelines for intermediaries Proposed regulatory regime for intermediaries and its impact on them Conduct requirements for intermediaries 1 Unless the governing rules of the original scheme allow more than one transfer per calendar year. Annual Report 2011/12 53

56 Preparing for the Implementation of the Employee Choice Arrangement (cont d) All MPF individual intermediaries should attend training course on ECA. Apart from conducting in-house training, trustees and corporate intermediaries also arrange training through institutions or professional bodies recognized by MPFA as core Continuing Professional Development ( CPD ) course providers. Seven train-the-trainer workshops were conducted by MPFA in 2011 for representatives of trustees, promoters and core CPD course providers who would deliver training on ECA for around intermediaries. To ensure consistency and quality, we prepared and distributed a set of standard teaching materials for use in the training, and conducted class visits to some training sessions. At the end of 2011, over 92% of intermediaries have completed both the Phase 1 and Phase 2 training components. Corporate intermediaries have the responsibility to ensure that all intermediaries under their purview are equipped with relevant and up-to-date knowledge and we have continued to encourage those who have yet to do so to complete these training modules. Phase 3 training which covers the contents of the new regulatory regime and conduct requirements for intermediaries has commenced. Five train-the-trainer workshops were held by MPFA in March 2012 for representatives of MPF trustees, promoters and course providers. All MPF individual intermediaries are expected to have completed this training module before ECA is launched. To better protect scheme members interests, we are pursuing legislation for regulating MPF intermediaries, and have explored measures to enhance the supervision of MPF intermediaries. Details are set out in the chapters Refining the Regulatory Framework and Supervising the Industry respectively. READINESS OF SYSTEMS AND PROCESSES Operational Arrangements To facilitate the implementation of ECA, in consultation with the trustees, we have developed a set of MPF Guidelines on ECA transfer process and a new ECA transfer form. Based on a set of agreed operational policies (including MPF Guidelines), trustees enhanced their systems and adjusted their operations to facilitate the implementation of ECA. The relevant MPF Guidelines will be formally issued closer to the ECA launch date. To assess the readiness of the systems and processes of trustees for the implementation of ECA, we conducted a round of on-site visits to them. During the visits, we reviewed their system enhancement and control processes, and assessed their compliance with the relevant guidelines on transfer of accrued benefits. We are following up with the trustees concerned on individual issues identified to ensure that remedial measures are put in place in time. As required, MPF trustees reviewed and revised MPF scheme documentation and disclosure materials to specify the details of ECA. We are reviewing the proposed changes submitted by trustees and have provided several rounds of comments to the trustees. We will closely monitor the progress and ensure that all the relevant documentation and materials are revised before the launch of ECA. Automation of the Transfer Process We have developed an electronic Portability Automation Services System ( epass ) with the trustees to cope with the expected increase in the number of elections made by scheme members for transfer of accrued benefits upon the implementation of ECA. The epass is built on the basis of the existing secured network platform connecting MPFA and individual trustees. It is expected to facilitate efficient and effective transfer of data among trustees and enhance data accuracy, thereby lowering the operating costs of the MPF System. The MPFA has performed testing of epass with the trustees to ensure that the system works properly in a secure manner. 54 Mandatory Provident Fund Schemes Authority

57 Meanwhile, we are pursuing legislative amendments to put it beyond doubt the power of MPFA to operate epass and mandate the use of epass by the trustees in transmitting the data on scheme members election of transfer of accrued benefits. The proposal is also covered in the Bill on the regulation of MPF intermediaries. Personal Account Register The enacted legislation on ECA provides for the establishment of a personal account register to enable a person to ascertain the number of personal accounts maintained by him/her and to identify the trustees with which he/she has personal account(s). A computerized system for the register has been developed, and the register will be formally launched along with ECA. READINESS OF SCHEME MEMBERS To pave the way for the implementation of ECA, MPF investment education programmes continued to be rolled out to educate scheme members on how to make informed MPF investment decisions. Details are set out in the chapter Educating the Public and Reaching out to the Community. Publicity programmes on ECA are planned and being rolled out to complement different stages of the implementation. We prepared and distributed a leaflet and launched a thematic webpage on MPFA s website in March 2012 to introduce the key features of ECA to the public. High profile publicity programmes, such as TV and radio advertisements, a short video and online promotions, will be rolled out to provide operational details and implementation arrangement of ECA closer to its launch. Public education initiatives will also be implemented to enhance understanding of the legislation on the regulation of MPF intermediaries and its impact on members of the public. A leaflet on the key concepts of ECA and points to note when making benefit transfers has been published and widely distributed A thematic webpage on ECA has been launched on MPFA s website to provide relevant information to the public Information about ECA has been included in the on-going investment education and communication sessions with stakeholders, including chambers of commerce, industry bodies, and sizeable employers. In March 2012, we also held two tea gatherings for District Council members and their assistants, researchers of political parties, and representatives of labour unions, to introduce to them the key features of ECA and collect their views. PROJECT GOVERNANCE A Steering Committee and an Implementation Group, both led by the Managing Director, have been established to oversee the preparatory work for the implementation of ECA. Regular meetings were held to discuss and resolve implementation issues and monitor progress. Annual Report 2011/12 55

58 International Exchanges The MPFA is a member of the International Organisation of Pension Supervisors ( IOPS ). During the year, we contributed to the development and drafting of a number of guidelines, good practices and working papers relating to pension regulation and supervision. We shared our regulatory, supervisory and enforcement experience with other IOPS members by participating in IOPS meetings. Our representatives also participated in other international conferences and gave presentations on the MPF System. We received visitors from overseas and the Mainland to MPFA, including representatives of government or non-government organizations, introducing the latest developments of the MPF System and the work of MPFA as well as exchanging views and sharing experiences with them. Highlights of these activities are given below. 20 Apr Jun Jun Jun Jun Jul Jul Aug Sep Sep Sep Oct 2011 At MPFA, Chief Operating Officer (Enforcement) and Head (Investment Regulation) received a delegation from China Chengxin Credit Rating Company Limited, led by the Founder and Chairman Mr Mao Zhenhua. They shared views on MPF investment with the delegates. Executive Director (Regulation & Policy) attended the Working Party on Private Pensions Meeting of the Organisation for Economic Co-operation and Development ( OECD ) in Mexico City, Mexico. Executive Director (Regulation & Policy) attended the Technical Committee meeting of IOPS in Mexico City, Mexico. Executive Director (Regulation & Policy) attended the Joint Seminar on Pensions and Annuities organized by IOPS and OECD in Mexico City, Mexico. A delegation from the China Securities Regulatory Commission visited MPFA and was briefed on the latest developments of the MPF System. Executive Director (Corporate Services) met with a delegation from Shenzhen Social Insurance Fund Office, led by Deputy Director Mr Huang Shaoqiang. The delegates were given an overview of the MPF System and roles and functions of MPFA. Executive Director (Supervision) received a delegation from Public Service Pension Fund Supervisory Board, Taiwan, led by the Secretary General Mr Liu Teng. She gave the delegates a presentation on the approval and supervision of MPF trustees. Executive Director (Regulation & Policy) attended the Annual Conference 2011 of Financial Services Council, Australia in Gold Coast, Australia. Ms Norlin Albakri, Senior Manager of Market Development, Securities Commission, Malaysia, visited MPFA and was briefed on the regulatory and supervisory framework of the MPF System. Executive Director (Regulation & Policy) gave a presentation on Choice of Fund & Portability Issues at the Asia-Pacific 2011 Pensions Forum in Hong Kong. Executive Director of the GNPF Accumulative Pension Fund, Republic of Kazakhstan, Mrs Saltanat Yelshibekova, visited MPFA and was briefed on the MPF System and roles of MPFA. Executive Director (Regulation & Policy) attended the Technical Committee meeting of IOPS in Cape Town, South Africa. 56 Mandatory Provident Fund Schemes Authority

59 25 Oct Oct Nov Nov Nov Jan Jan Feb Feb Feb Mar 2012 At MPFA, Chief Operating Officer (Enforcement) received a delegation from 2011 Cross Straits Pension System Forum, including delegates from China Social Insurance Association, Hong Kong Retirement Schemes Association, Macau Social Security Society, Taiwan Pension Fund Association and Senator the Hon Nick Sherry of Australia. She briefed them on the latest developments and way forward of the MPF System. Executive Director (Regulation & Policy) attended the Global Forum on Private Pensions organized by IOPS and OECD in Cape Town, South Africa. Executive Director (Regulation & Policy) gave a presentation on The Use of ETFs in the MPF System at the Indexing and ETF Investments 2011 conference in Hong Kong. Chief Operating Officer (Enforcement) met with a delegation from Shenzhen Social Insurance Fund Office, led by Deputy Director Mr Huang Guiquan. The MPFA gave an overview of the MPF System and roles of MPFA to the delegates. A delegation from Labor Inspection Bureau, Department of Human Resources and Social Security of Guangdong Province, led by Vice Director Chen Ming, visited MPFA. Chief Operating Officer (Enforcement) received the delegation and gave them a presentation on the MPF System and MPFA s enforcement actions. Executive Director (Supervision) attended the 5th Contractual Savings Conference organized by The World Bank in Washington D.C., United States of America. Chief Operating Officer (Enforcement), Executive Director (Regulation & Policy), Executive Director (Supervision) and Executive Director (Corporate Services) attended the Asian Financial Forum 2012 organized by the Government and Hong Kong Trade Development Council in Hong Kong. Chief Operating Officer (Enforcement) met with the Chief Executive of Australian Industry Group of Australia, Mrs Heather Ridout, and gave her a presentation on the regulatory and supervisory framework and the latest developments of the MPF System. Executive Director (Regulation & Policy) attended the Technical Committee meeting of IOPS in London, United Kingdom ( UK ). Executive Director (Regulation & Policy) attended the Seminar on Occupational Pensions Reforms and Developments on UK organized by the IOPS and The Pensions Regulator of UK in London, UK. Managing Director of the Swedish Private Equity and Venture Capital Association, Mrs Marie Reinius, visited MPFA. Chief Operating Officer (Enforcement) briefed her on the MPF System and its latest developments. Annual Report 2011/12 57

60 To know more about MPF scheme Your Investment

61 Corporate Governance The MPFA is committed to high standards of corporate governance in conducting its affairs in the best interest of the organization and its stakeholders. We strive to enhance the effectiveness of management of the organization, ensure its accountability to the public and transparency of its operations through the disclosure of quality information on our operation and governance. We abide by the MPF legislation which governs many aspects of the operations of MPFA s Management Board and its supporting committees. We also adopt appropriate principles and best practices of internal control, risk management and reporting, and corporate governance practices that are applicable to public organizations. GOVERNING STRUCTURE MPFA MANAGEMENT BOARD 11 Non-executive Directors (including Chairman) 5 Executive Directors (including Managing Director) Supporting committees: - Administration Committee - Audit Committee - Finance Committee - Guidelines Committee - Tender Board - Ad hoc committees / working groups The Management Board The MPFA Management Board consists of not fewer than 10 directors appointed by the Chief Executive of HKSAR, as required by the MPF legislation. A majority of the directors are non-executive directors to ensure the effective exercise of independent judgment. With a balance of skills, experience and background appropriate to the operational requirements of MPFA, directors exercise a reasonable degree of care and diligence to ensure that MPFA performs its functions properly. The roles and powers of the Chairman and the Managing Director are segregated but complementary. The Chairman is a non-executive director responsible for the leadership and effective operations of MPFA, while the Managing Director is an executive director and the administrative head responsible for administering the affairs of MPFA subject to the direction of the Management Board. As at 31 March 2012, MPFA s Management Board consists of 11 non-executive directors and five executive directors. Information on the directors is set out on pages 16 to 21 of this report and has been promptly published on MPFA s website upon their appointment. The MPF legislation provides that the terms and conditions of office of MPFA s directors are determined by the Chief Executive of HKSAR. Except for the Managing Director, the authority to determine the terms and conditions of office of executive directors has been delegated to the Financial Secretary. Non-executive directors are not employees of MPFA and are not paid for their service. The remunerations of individual directors of MPFA are disclosed in the notes to the Financial Statements on page 94. Annual Report 2011/12 59

62 Corporate Governance (cont d) The Management Board performs the functions set out in section 6E of the Mandatory Provident Fund Schemes Ordinance ( MPFSO ). It is responsible for determining key corporate strategies and policies, overseeing the delivery of the planned results, endorsing the corporate plan and budget of MPFA, and ensuring that MPFA s operations are conducted prudently and within the framework of applicable laws, regulations and policies. Supported by a number of committees, the Management Board gives directions to the executives of MPFA for the administration of MPFA s affairs and delegates the management of day-to-day operations to the executives. The Management Board held eight meetings during the year, and considered 28 papers by circulation. The average attendance rate of members was 95%. Supporting Committees A number of committees have been set up to give advice and assistance to, and perform functions delegated by, the Management Board. These include standing committees providing on-going support, as well as ad hoc committees/ working groups to advise on specific projects/issues. The composition and terms of reference of the supporting committees are in Appendix 1. Standing Committees: The Audit Committee At our recommendation, MPFA has taken a longer term perspective in planning its internal audit exercises and drawn up a five-year programme instead of a two-year programme to give a more comprehensive picture of the scope to be covered by the exercises. We are also pleased to note that with the strengthening of the Risk Management Unit, the frequency of finance-related internal audit exercises has been increased, and that the auditing of all major financial operations can be covered every three years. - Ms Paddy Lui, Chairman of the MPFA Audit Committee During the year, the Audit Committee met twice and considered two papers by circulation. The Committee reviewed the financial statements of MPFA and the MPF Schemes Compensation Fund for the financial year , received the half-yearly financial reports for , considered and endorsed MPFA s five-year internal audit programme, considered an internal audit report on the controls and procedures relating to MPFA s investment activities, and received summary reports on two process control audits covering MPFA s performance pledge programme and handling of complaints against non-compliant employers. The average attendance rate of members was 88%. The Administration Committee We have considered a number of proposals this year to enhance staff benefits. In making our recommendations, we have taken into account the latest trends in human resources management philosophy and practices. - Hon Ip Kwok-him, Chairman of the MPFA Administration Committee During the year, the Administration Committee held three meetings to consider the manpower plans in the budget for and proposed budget for , the proposals for enhanced staff benefits, and other human resources related issues. The attendance rate of members was 100%. 60 Mandatory Provident Fund Schemes Authority

63 The Finance Committee The volatile investment environment and the evolving financial market with new financial products pose great challenges to us in monitoring the management of the Capital Grant and the MPF Schemes Compensation Fund and mapping out investment strategies. With our expertise and experience in accounting and financial management, we have taken up those challenges positively with confidence. - Mr Philip Tsai, Chairman of the MPFA Finance Committee During the year, the Finance Committee held three meetings and considered eight papers by circulation. The matters considered included the investment guidelines, strategy and performance of the Capital Grant and the MPF Schemes Compensation Fund, the audited financial statements for , the half-yearly financial reports for , the proposed budget for and other financial control issues. The average attendance rate of members was 93%. The Guidelines Committee There are 65 sets of MPF Guidelines to elaborate on and support the requirements of the MPF legislation. The adjustments to the minimum and maximum levels of relevant income alone entail changes to six different sets of Guidelines. We have to be very meticulous in scrutinizing proposed revisions to ensure that clear guidance is given to industry practitioners. - Mr Rimsky Yuen, Chairman of the MPFA Guidelines Committee The Guidelines Committee met once during the year and considered three papers by circulation. Ten sets of amended MPF Guidelines were endorsed by the Committee. It also considered the draft Guidelines related to the Employee Choice Arrangement. The average attendance rate of members was 78%. The Tender Board We assess all tender submissions carefully, taking into account the technical competency of the bidders and the quotations given. The purpose is to select a service provider that would best suit MPFA s requirements at a reasonable cost. - Hon Andrew Leung, Chairman of the MPFA Tender Board During the year, the Tender Board met twice to consider the re-appointment of insurer for the group insurances for MPFA staff for and The Board also assessed the tender submissions received for a study on MPF trustees administration costs. The attendance rate of members was 100%. Ad hoc Committees / Working Groups: The Working Group on Regulation of Sales and Marketing of MPF Products With a statutory regulatory regime for MPF intermediaries in place, the interests of about 2.5 million MPF scheme members will be better protected. - Mr Rimsky Yuen, Chairman of the Working Group on Regulation of Sales and Marketing of MPF Products In the previous financial year ( ), the Working Group had completed its deliberations on issues related to the development of a statutory framework for the regulation of marketing and selling of MPF schemes. It did not meet in Annual Report 2011/12 61

64 Corporate Governance (cont d) The Working Group on Review of Withdrawal of MPF Benefits The proposals on the withdrawal of MPF benefits affect each and every member of the MPF System. These issues warrant broad consultation to gauge the views of the public. - Mr Rimsky Yuen, Chairman of the Working Group on Review of Withdrawal of MPF Benefits The Working Group met three times during the year to review the existing grounds for withdrawal of MPF benefits and the mode of benefits payment, and to discuss and consider additional grounds for withdrawal. It scrutinized a draft Consultation Paper which was published in December 2011 for open consultation. The attendance rate of members was 100%. The Working Group on MPF Reform Issues The Management Board has identified two aspects of review, namely, high fees and charges and choice of MPF schemes by employees, as priority issues for study. With our diverse background, members of the Working Group will be able to contribute by bringing in different expertise and perspectives in considering the issues. - Hon Anna Wu, MPFA Chairman and Chairman of the Working Group on MPF Reform Issues During the year, the Working Group held two meetings to discuss measures to increase employee choice, and to consider commissioning a consultancy study on MPF trustees administration costs. The attendance rate of members was 100%. Project Steering Committee on Consultancy Study on MPF Trustees Administration Costs The fee level of MPF schemes has been a matter of public concern and MPFA has been looking for ways to drive it down. We expect our appointed consultant, with its vast expertise and overseas experience, will provide an in-depth analysis of MPF trustees administration costs and make practical recommendations on how to achieve simplicity, greater economies of scale and overall cost reduction. - Mr John Poon, Chairman of the Project Steering Committee on Consultancy Study on MPF Trustees Administration Costs The Steering Committee worked closely with the consultant and held four meetings within the first three months of 2012 to monitor the progress of the independent consultancy study on MPF trustees administration costs. The attendance rate of members was 100%. 62 Mandatory Provident Fund Schemes Authority

65 The table below sets out the attendance of individual directors at Management Board and Committee meetings in Attendance of directors at meetings Management Board Audit Committee Administration Committee Finance Committee Guidelines Committee Tender Board Working Group on MPF Reform Issues Working Group on Review of Withdrawal of MPF Benefits Project Steering Committee on Consultancy Study on MPF Trustees Administration Costs Number of meetings held during the year Attendance of directors Hon Anna Wu Hung-yuk 8/8 3/3 2/3 1/1 2/2 3/3 Hon Li Fung-ying 8/8 3/3 3/3 Hon Andrew Leung Kwan-yuen 8/8 2/2 Hon Wong Kwok-kin 8/8 1/2 Mr Rimsky Yuen Kwok-keung 4/8 1/1 3/3 Hon Ip Kwok-him 7/8 2/2 3/3 2/2 Ms Paddy Lui Wai-yu 7/8 2/2 4/4 Mr John Poon Cho-ming 8/8 3/3 2/2 2/2 4/4 Mr Philip Tsai Wing-chung 8/8 2/2 3/3 4/4 Secretary for Financial Services and the Treasury 1 8/8 Secretary for Labour and Welfare 2 8/8 Mrs Diana Chan Tong Chee-ching 8/8 3/3 3/3 Ms Hendena Yu 7/8 Mr Darren Mark McShane 8/8 1/1 Mr Thomas Yiu Kei-chung 8/8 3/3 3/3 2/2 Ms Cynthia Hui Wai-yee 8/8 Notes: 1 Seven meetings attended by alternate director 2 Eight meetings attended by alternate director Annual Report 2011/12 63

66 Corporate Governance (cont d) ACCOUNTABILITY AND TRANSPARENCY Management of Conflicts of Interest The Management Board adopts a two-tier system of declaration of interest. Under the system, directors are required by the MPF legislation to report the nature of a pecuniary interest in a matter placed before the Management Board if the interest appears to raise a conflict with the proper performance of the director s duties in relation to the consideration of the matter. Particulars of the disclosure made at Management Board meetings are recorded in a register available for public inspection. Directors are also required to disclose their general interests on appointment/ re-appointment to the Management Board, such as remunerated directorship and employment, and review on an annual basis the correctness and currency of the information provided to MPFA. In the interim, should there be any changes to the information disclosed, they are requested to notify MPFA as soon as practicable, preferably within two weeks, after becoming aware of the relevant facts. Corporate Planning In accordance with section 6J of the MPFSO, we prepare a corporate plan for each financial year to specify the objectives for the year, the nature and scope of the activities to be undertaken and a budget of estimated expenditure and manpower requirements for achieving the objectives. The proposed plan, together with the budget, is submitted before the commencement of the relevant financial year to the Financial Secretary of HKSAR for approval. Our executives monitor regularly the activities set out in the corporate plan and reports the progress of work to the Management Board. A mid-year review of the corporate plan is conducted to assess the achievement of the planned objectives. A review of the budget is carried out in parallel, and any proposed adjustments are submitted to the Financial Secretary for approval. Subsequently, a full year review of the corporate plan is conducted with the results submitted to the Financial Secretary in the context of the next proposed corporate plan. The achievement of the initiatives and goals set out in the corporate plan are also reported in this annual report. In the year, we also went through a strategic planning process to map out the strategic directions of the organization for the medium to long term. This would form the basis of corporate planning exercises in the years to come. Financial Resources The operations of MPFA are financed by the investment returns generated from a one-off Capital Grant of $5 billion from the HKSAR Government and by fees and charges collected. As at 31 March 2012, the balance of the Capital Grant was $5.17 billion. We continued to exercise stringent control over our spending and prudence in preparing the annual budget. For details of the financial position of MPFA, please refer to the financial statements on pages 75 to 97. Reporting and Communication In accordance with section 6I of the MPFSO, we deliver an annual report, together with audited financial statements and auditor s report, to the Financial Secretary of HKSAR. The financial statements are prepared in accordance with the accounting standards, reporting standards and interpretations promulgated by the Hong Kong Institute of Certified Public Accountants or the accounting and reporting standards, if any, notified in writing by the Financial Secretary under section 6N(3) of the MPFSO. For six years in a row, our annual report has won awards in the non-profit making and charitable organizations category of the Best Annual Reports Awards event organized by the Hong Kong Management Association. The report for won the Bronze Award. 64 Mandatory Provident Fund Schemes Authority

67 We release information on our operations to the public through press releases, and publish a quarterly Statistical Digest to provide statistics on MPF and ORSO schemes. Starting from December 2010, we publish the MPFA Newsletter every quarter for the MPF community to provide updates of our work, and useful information about the MPF System and MPF management. The MPFA s website also provides comprehensive information about the latest development of the MPF System and the work of MPFA. Performance Pledges We have a system of performance pledges to monitor the attainment of service standards and the achievement of operational targets. The achievement of our pledges to the public in the financial year is set out in the table below. Achievement of performance standards in Service Service Standard Performance Achieved Call Centre Service (Hotline ) (1) Answering hotline enquiries and messages A. Answer hotline enquiries within 3 minutes 99.98% under normal circumstances (i.e. not more than 600 incoming calls a day) B. Reply hotline voice mail messages within the 100% next working day (2) Answering written enquiries A. Acknowledge receipt within 3 working days 99.95% B. Answer general enquiries within 10 working 100% days C. Provide an interim reply within 10 working days 100% for enquiries requiring more processing time (3) Complaint acknowledgement Acknowledge receipt within 3 working days 100% Complaints Investigation (1) Initial contact with complainant for investigation by Case Officer Contact complainant for investigation within 7 working days from the date of receiving a case 99.83% (2) Responding to enquiries by complainant/ complainee on investigation progress (3) Informing complainants of enforcement actions Inform complainant/complainee of investigation progress within 3 working days A. Cases involving prosecution A1. Notify complainants by phone of issue of prosecution summonses not less than 2 working days before the summonses are applied A2. Notify complainants of prosecution results within 10 working days of receiving a verdict B. Cases involving surcharge B. Notify complainants by phone of issue of surcharge notices not less than 2 working days before actual issuance 100% 100% 100% 100% Annual Report 2011/12 65

68 Corporate Governance (cont d) Supply of and Access to Information In , MPFA received 20 requests under the Code on Access to Information and followed the required procedures set out in the Code in processing the requests. INTERNAL CONTROLS We put in place an internal control system to provide assurance regarding the achievement of MPFA s objectives through effective and efficient operations, reliable internal and external reporting, and compliance with applicable laws, regulations and internal policies. Internal Audit and Management Review The MPFA s internal audit function is performed by the Risk Management Unit which has unlimited access to operational information for discharging its duty. Reporting to the Managing Director, the Unit provides an independent assessment of internal controls in line with the guidelines and standards on internal audit promulgated by the Hong Kong Institute of Certified Public Accountants. It reviews whether operational policies, procedures and controls are adequate and whether they are complied with, and identifies improvement opportunities. Findings are reviewed by the executive management and reported to and considered by the Audit Committee, which reports to the Management Board directly to ensure objectivity and independence. During the year, it reviewed the controls and procedures relating to MPFA s investment activities, implementation of MPFA s performance pledge programme, handling of complaints against employers who did not comply with the MPF legislation, compliance with procedures in the Call Centre, and compliance with procedures for records management in the Supervision Division. Risk Management We have a risk assessment and management programme to identify, assess and manage risks in a timely and systematic manner. A corporate level risk register and a departmental risk register for each department are maintained to keep track of treatments of identified risks. These are reviewed and updated annually during the corporate planning process. We have in place a set of policies and procedures to maintain continuity of vital functions at times of contingency and disaster. In October 2011, we conducted a disaster recovery drill in respect of our IT systems to familiarize staff with the recovery procedures for continuing the operation of critical computer systems in the event of a disaster. In view of heightened public concern over the leakage of sensitive or personal data, we explored further measures to enhance security controls and prevent data leakage. A secure printing solution was implemented in May 2011 so that print jobs sent to networked communal printers will only be printed out after the identity of the person who sends the jobs has been confirmed at a workstation next to the printer. This would avoid leaving printouts with sensitive information unattended at those printers. A Data Loss Prevention system was launched in November 2011 to block outgoing messages with unencrypted personal or sensitive data so as to reduce the risk of leakage through internet . A quiz on personal data privacy protection was organized to raise staff s awareness of the importance of personal data protection. 66 Mandatory Provident Fund Schemes Authority

69 Code of Conduct Our staff are required to comply with a Code of Conduct, which sets out the minimum standards of acceptable conduct, how staff should respond to different situations in official dealings, and their legal and contractual obligations to MPFA. The Code continued to operate well in providing guidelines on various issues, such as confidentiality of information, the offer and acceptance of advantages, avoidance of conflicts of interest, and declaration of financial and other interests. Periodic reminders are also circulated to draw staff s attention to the requirements regarding declaration of interests and acceptance of customary gifts during festive occasions. Procedures are in place to facilitate whistle-blowing in regard to the reporting and handling of suspected improprieties, such as gross misconduct or violation of MPFA s policies. INDEPENDENT CHECKS AND BALANCES Reviews We invite external reviews of our operations periodically to ensure that the control measures are adequate, to maintain fairness in our procedures and to identify improvement areas. During the year, a consultant was engaged to conduct a security risk assessment and audit of the newly developed electronic Portability Automation Services System. Taking into account the consultant s recommendations, we implemented measures to mitigate the risks identified. The financial statements of MPFA are subject to audit by an external auditor which is not engaged in any other non-audit services. PricewaterhouseCoopers continued to be MPFA s external auditor in the financial year Appeal Boards The Mandatory Provident Fund Schemes Appeal Board established pursuant to section 35 of the MPFSO hears appeals against any decision of MPFA specified in Schedule 6 of the MPFSO. The Occupational Retirement Schemes Appeal Board established pursuant to section 61 of the ORSO hears appeals against the ORSO Registrar s decisions as specified in the ORSO. No appeal was lodged with either appeal board during the year. Annual Report 2011/12 67

70 Corporate Social Responsibility With Community Perspective as one of its core values, MPFA is dedicated and committed to its corporate social responsibility. This responsibility is reflected in MPFA s vigilance in protecting the environment in its day-to-day operations, its visible care for the community, and its keenness to promote the well-being of its staff. THE ENVIRONMENT The MPFA embraces the concept of sustainable development and upholds environmental protection principles in its daily operations. We are pleased to be granted the Wastewi$e Environmental Label for the second consecutive year by the Hong Kong Productivity Council for our commitment to and achievements in green management and waste reduction. We continued to reduce our consumption of energy, paper and stationery, and implement green procurement by purchasing green products and cutting down on one-off disposable items. We collected used printer cartridges for recycling, and donated old computer equipment to charitable organizations to help the needy and protect the environment. To save energy, we installed timers to switch off office lighting automatically at night. Timers were also installed for all suitable office equipment, including copiers, shredders, printers and water dispensers to cut off their main power supply automatically during non-office hours. We also reduced the power consumption of computer servers by consolidating and reducing the number of servers using virtualization technology. To foster an energysaving culture, we launched a programme from 2011 under which lighting for the general office area was switched off for fixed durations on regular Green Days. To further promote environmental protection and reduce wastage, we set up a goods exchange platform to encourage staff to share items such as household products which were no longer needed but still in good condition and might be of use by other colleagues. The MPFA has been awarded Green Employer by the Inland Revenue Department ( IRD ) of the HKSAR Government to recognize MPFA and its staff s support for a green environment. The MPFA has been submitting the annual Employer s Returns electronically and more than 25% of its staff have filed their individual tax returns through IRD s e-channel, the etax. THE COMMUNITY Our staff are not only mindful of the community s needs in carrying out MPFA s functions, they are also encouraged to show their care towards the community on a personal basis, through the organization s participation in various charitable activities and the operation of the MPFA Volunteer Team. During the year, the MPFA Volunteer Team continued to mobilize our staff, their family members and friends to participate in voluntary services. The total number of hours of services offered to the community was over The activities organized/participated in included the following: Care towards students with special needs supported by funds raised among MPFA staff, an outing and a Christmas party were organized for students of the Hong Kong Red Cross Princess Alexandra School. A visit was also arranged for senior secondary students of the School to MPFA s office to let them have a feel of a real working environment and learn more about the MPF System and MPFA; Students of the Hong Kong Red Cross Princess Alexandra School visited the MPFA s office 68 Mandatory Provident Fund Schemes Authority

71 Care towards the elderly the Volunteer Team distributed festive rice dumplings to the elderly and organized gatherings for them in partnership with a local social service group. The Team participated in a half-year Pilot Neighborhood Active Ageing Project to disseminate the message of cherishing life among the aged, and identify and support elderly people in need. Further to similar services rendered three years ago, some members of the Team were involved in a project to assist senior residents affected by the phase two demolition of So Uk Estate to help them through the process of selecting replacement flats and moving to the new flats; The MPFA Volunteer Team organizes activities to render care towards the elderly Care towards needy families members of the Volunteer Team, together with their friends and families, joined an 18-month programme to pay regular visits to families participating in the programme to deliver basic health education; Fund-raising events MPFA volunteers participated in flag-selling and fund-raising activities of charitable organizations to raise funds to support the organizations welfare services for the community; and Other volunteer programmes MPFA staff participated in a disaster drill in the airport at the call of the Agency for Volunteer Service. Staff, families and friends were eager to join fund-raising activities to help the needy Annual Report 2011/12 69

72 Corporate Social Responsibility (cont d) Our support for the needy outside Hong Kong continued. Through the China Care Fund, some of our staff members provided financial support to several secondary school students in the Guangdong and Guangxi Provinces of the Mainland. In September 2011, an MPFA volunteer joined a delegation to take part in a three-day visit to these students at their high schools in Guangxi. The delegation participated in educational and recreational activities with the students. They also met local educators to understand more about the students needs. Staff of MPFA also took part in various fund-raising activities, including the events organized by the Community Chest, i.e. the Green Day and the Dress Casual Day We won an Outstanding Award in the photo competition of the Dress Casual Day under the Companies and Organizations category. We participated in the Sowers Action Challenging 12 Hours Charity Marathon to raise funds in support of education for children in mountainous regions of the Mainland. Members of the MPFA Volunteer Team also supported the Marathon by manning a supplies station for participants in the event. The MPFA won an Outstanding Award in the photo competition of the Dress Casual Day organized by the Community Chest OUR STAFF The MPFA treasures its staff as its most valuable asset. We accord high priority to maintaining the competitiveness of our remuneration, providing sufficient training and career development opportunities to our staff, maintaining a congenial working environment and nurturing a culture of sharing and communication, with a view to fostering an engaged workforce. Staffing The approved headcount as at the end of the previous financial year ( ) was 694. During , new positions were created to strengthen the policy development function and to meet the operational needs of some work units. The structure of various divisions/departments, in particular the Supervision Division, was reviewed and enhanced to meet business needs, including the preparation for the launch of Employee Choice Arrangement by end of As at 31 March 2012, MPFA had an approved headcount of 703. The staff cost to total expenditure ratio for the year was 63.99%, and the staff turnover rate was 11.46%. Remuneration, Benefits and Staff Development The Hiking Team shows its continuous support to the Sowers Action at its annual charity marathon The remuneration package of MPFA comprises a fixed basic salary and a performance-linked variable pay granted at the discretion of the Management Board. Fringe benefits include annual leave, medical and dental benefits, insurance coverage and MPF. With the Management Board s approval, a performance-linked variable pay for and an adjustment in fixed pay with effect from 1 April 2012 were granted to eligible staff subject to individual performance. We organize training programmes for staff and nominate staff to attend or speak at seminars and conferences to facilitate both local and international exchange and widen their professional exposure and network. In , there were instances of staff attending training programmes, seminars and conferences. The training programmes included knowledge sharing sessions, management development programmes, and training courses on business knowledge, technical/professional skills (such as those related to legal, accounting and finance, information technology, human resources and project management), language and writing skills, and soft skills (such as presentation skills, customer servicing skills and problem solving skills). 70 Mandatory Provident Fund Schemes Authority

73 In terms of career development opportunities, a special advancement scheme for Executive Assistants and Secretaries was launched to enhance the career development channel for staff. In , 49 staff members were promoted to higher positions and 18 staff members were transferred laterally to other positions to develop their capabilities and enrich their organization and job knowledge. Culture Building We strive to promote the core values of Commitment, Quality, Teamwork and Community Perspective in our organization development and culture building activities to nurture a corporate culture that fosters trust, embraces change and values teamwork. During the year, the Managing Director, together with the senior management, that is, Executive Directors and Heads, conducted a series of face-to-face communication sessions with all staff members. They shared with staff their views on some of the topical issues relating to the MPF System and MPFA and heard staff s views on these matters, as well as any concerns and suggestions regarding staff welfare and work. We also maintained regular communication across the organization through various channels, including a quarterly electronic bulletin on corporate business news, staff bulletins on human resources matters and the quarterly staff newsletter, The Orchard, on staff news. We give recognition to our staff who demonstrate well the corporate core values in their work. A total of 112 recognition awards were offered to staff members this year. Apart from the Customer Service Award, Community Participation Award and Service to MPFA Award, a new Award for MPFA s Role Model was created to recognize staff members who exemplified the core values in their daily work and were regarded as role models in the organization. Separately, under the Long Service Award Scheme, awards were granted to 35 colleagues who had completed 10 years of continuous service in appreciation of their long service and dedication to MPFA. Externally, MPFA staff members have been publicly recognized for their service excellence. Commendations were received from members of the public by 28 staff members in Furthermore, a total of 14 staff members have won the Ombudsman s Awards for Officers of Public Organizations over nine consecutive years. Two of these awards were won in Employee Wellness Ms Essie Chan of Enforcement Department and Mr Alex Chu of Trustees Supervision Department won the Ombudsman s Awards for Officers of Public Organization Staff well-being is our top concern. Precautionary measures are in place for the protection of safety and health of our staff at work. We follow the Occupational Safety and Health legislation to assess and re-assess the risks of workstations to the safety and health of users, as and when necessary. We conducted 165 such assessments in Computer monitors with larger screen sizes were progressively installed to replace old ones to better protect staff members eyesight. Staff members may also choose to receive pop-up messages at specified intervals reminding them to do stretching exercises, as demonstrated in a video produced by the Occupational Safety and Health Council, to relieve the physical stress caused by prolonged use of computer equipment. We maintain a team of first aiders recruited from among our staff and provide them with appropriate training to offer basic medical assistance to colleagues in need. At the end of the financial year, we have more than 10 first aiders. In 2011, Health Check Corners were set up in all offices of MPFA to provide simple health check equipment and health care information to encourage staff to closely monitor their health situation. Annual Report 2011/12 71

74 Corporate Social Responsibility (cont d) In the year, we assessed the indoor air quality of our offices by checking the room temperature, relative humidity, and the levels of common indoor air pollutants. The results indicated that the indoor air quality of the premises assessed was very good, and we were awarded an Excellent Class Certificate under the Indoor Air Quality ( IAQ ) Certification Scheme 2011 organized by the Environmental Protection Department and Indoor Air Quality Information Centre in recognition of the good IAQ management of our offices. Under the Employee Assistance Programme, counselling services are provided by qualified professionals to help staff cope with workplace stress and personal issues. A series of lunch seminars on mental health/emotional well-being and physical health related topics were also organized during the year. The MPFA was awarded an Excellent Class Certificate for the good indoor air quality management of its offices Through its Staff Welfare Committee, MPFA organizes numerous social activities for its staff. Activities during the year include a bowling competition, interest classes ranging from cooking to wine tasting, day-tours to farms and gardens, an inter-departmental MPFA Summer Games Fantasy and an annual dinner. The interest clubs formed under the Committee, such as Basketball Club, Hiking Club, Photo Club, Parents Club and Soccer Club, continued to organize activities for the enjoyment and relaxation of staff and their family members. At the Annual Dinner, Board Members and guests led a round of singing, joined by all participants on the floor and the highlight of the evening was a talent show performed by the Information Technology Division The Bowling Night has become an annual event with an overwhelming response from staff A Summer Games Fantasy was successfully organized for the first time to promote team spirit among staff of different departments and office locations 72 Mandatory Provident Fund Schemes Authority

75 The Staff Welfare Committee specially arranged interest classes ranging from cooking to handicraft Tai Chi classes and outdoor activities were arranged to promote the importance of work life balance MPFA A CARING ORGANIZATION For the seventh year consecutively, MPFA was awarded the Caring Organization logo under the Caring Company Scheme run by the Hong Kong Council of Social Service in 2011 in recognition of our on-going commitment to caring for our staff, the environment and the community. We are also delighted that three MPFA Volunteer Team members were selected as MPFA s Caring Ambassadors under the Caring Organization Scheme to recognize their efforts in actively supporting our community programmes. The MPFA s Caring Ambassadors and other representatives of MPFA at the Caring Organization logo award ceremony Annual Report 2011/12 73

76 MPFA Income and Expenditure Account Plan Your move

77 MPFA Independent Auditor s Report TO THE MANAGEMENT BOARD OF THE MANDATORY PROVIDENT FUND SCHEMES AUTHORITY (THE MPFA ) (Established in Hong Kong under the Mandatory Provident Fund Schemes Ordinance) We have audited the financial statements of the MPFA set out on pages 76 to 97, which comprise the statement of financial position as at 31 March 2012, the income and expenditure account, the statement of comprehensive income, the statement of changes in capital and reserve and the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. The Management Board s Responsibility for the Financial Statements The Management Board is responsible for the preparation of financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants, and for such internal control as the Management Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with section 6P of the Mandatory Provident Fund Schemes Ordinance and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Management Board, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the state of the MPFA s affairs as at 31 March 2012, and of its deficit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards. PricewaterhouseCoopers Certified Public Accountants Hong Kong, 19 June 2012 Annual Report 2011/12 75

78 MPFA Income and Expenditure Account for the year ended 31 March 2012 NOTES INCOME Fee income 7,229,050 8,146,902 Interest income on bank deposits 4,709,968 2,043,372 Net investment income 7 237,121, ,626, ,060, ,817,195 Other income 70,508 12, ,131, ,830,013 EXPENDITURE Staff costs 9 263,962, ,349,753 Depreciation and amortisation 12, 13 15,423,721 17,695,765 Premises expenses 54,668,331 53,593,381 Public education and publicity expenses 31,755,234 22,024,263 Investment expenses 14,933,965 15,412,618 Other operating expenses 31,741,487 27,676, ,484, ,752,688 DEFICIT FOR THE YEAR (163,353,473) (98,922,675) The accompanying notes form an integral part of these financial statements. 76 Mandatory Provident Fund Schemes Authority

79 MPFA Statement of Comprehensive Income for the year ended 31 March 2012 The MPFA had no components of comprehensive income other than deficit for the year in either of the years presented. Accordingly, no separate statement of comprehensive income is presented as the MPFA s total comprehensive loss was the same as the deficit for the year in both years. The accompanying notes form an integral part of these financial statements. Annual Report 2011/12 77

80 MPFA Statement of Financial Position at 31 March 2012 NOTES NON-CURRENT ASSETS Property and equipment 12 14,977,383 24,060,611 Intangible assets 13 9,787,559 4,761,226 Projects in progress 14 5,503,927 3,218,377 30,268,869 32,040,214 CURRENT ASSETS Investments designated at fair value 15 4,712,848,107 4,717,410,537 Derivative financial instruments 16 2,431,206 1,341,995 Unsettled investments receivable 51,780, ,415,736 Debtors, deposits and prepayments 27,781,880 31,735,222 Bank deposits 230,555, ,500,358 Other bank balances and cash 909,762,954 1,190,854,371 5,935,160,565 6,382,258,219 CURRENT LIABILITIES Derivative financial instruments 16 6,495,918 8,161,141 Unsettled investments payable 738,518,035 1,019,680,274 Creditors and accrued charges 42,052,576 44,781,640 Fees received in advance 3,860,350 3,819, ,926,879 1,076,442,405 NET ASSETS 5,174,502,555 5,337,856,028 CAPITAL AND RESERVE Capital grant 17 5,000,000,000 5,000,000,000 Income and expenditure account 174,502, ,856,028 5,174,502,555 5,337,856,028 The financial statements on pages 76 to 97 were approved and authorised for issue by the Mandatory Provident Fund Schemes Authority on 19 June 2012 and are signed on its behalf by: Diana Chan Managing Director The accompanying notes form an integral part of these financial statements. 78 Mandatory Provident Fund Schemes Authority

81 MPFA Statement of Changes in Capital and Reserve for the year ended 31 March 2012 Capital Grant Income and Expenditure Account Total At 1 April ,000,000, ,778,703 5,436,778,703 Deficit for the year - (98,922,675) (98,922,675) At 31 March ,000,000, ,856,028 5,337,856,028 Deficit for the year - (163,353,473) (163,353,473) At 31 March ,000,000, ,502,555 5,174,502,555 The accompanying notes form an integral part of these financial statements. Annual Report 2011/12 79

82 MPFA Statement of Cash Flows for the year ended 31 March OPERATING ACTIVITIES Deficit for the year (163,353,473) (98,922,675) Adjustments for: Depreciation and amortisation 15,423,721) 17,695,765 (Gain) / loss on disposals of property and equipment and intangible assets (75,749) 1,182,659 Interest income on bank deposits (4,709,968) (2,043,372) Interest income on investments designated at fair value (98,985,890) (109,424,226) Dividends from investments designated at fair value (29,616,246) (27,232,402) Net gains on investments designated at fair value (108,702,268) (173,557,282) Net losses on derivative financial instruments 182,564 33,586,989 (389,837,309) (358,714,544) Decrease in debtors, deposits and prepayments 4,552,847 5,024,963 Decrease in creditors and accrued charges (2,061,170) (7,070,175) Increase / (decrease) in fees received in advance 41,000 (242,550) Interest received for the Government Injection of Contributions Project Net contributions and payments made for the Government Injection of Contributions Project - (378,305) Refund made for the Government Injection of Contributions Project - (994,844) NET CASH USED IN OPERATING ACTIVITIES (387,304,632) (362,375,273) INVESTING ACTIVITIES Dividends received from investments designated at fair value 29,056,089 26,977,848 Interest received on bank deposits 4,110,463 1,816,076 Interest received from investments designated at fair value 100,264, ,354,813 Proceeds on disposals of property and equipment and intangible assets 90,860 94,410 Proceeds on disposals of investments designated at fair value 13,546,890,369 14,580,116,036 Purchase of property and equipment, intangible assets and projects in progress (14,335,381) (13,366,085) Purchase of investments designated at fair value (13,583,871,113) (14,060,283,498) Purchase of derivative financial instruments (2,936,999) (20,406,676 ) Decrease / (increase) in bank deposits 26,944,758 (2,490,358 ) NET CASH FROM INVESTING ACTIVITIES 106,213, ,812,566 NET (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS (281,091,417) 264,437,293 CASH AND CASH EQUIVALENTS AT 1 APRIL 1,190,854, ,417,078 CASH AND CASH EQUIVALENTS AT 31 MARCH 909,762,954 1,190,854,371 ANALYSIS OF CASH AND CASH EQUIVALENTS Bank balances held for investment purposes 904,153,257 1,183,758,813 Other bank balances and cash 5,609,697 7,095, ,762,954 1,190,854,371 The accompanying notes form an integral part of these financial statements. 80 Mandatory Provident Fund Schemes Authority

83 MPFA Notes to the Financial Statements for the year ended 31 March BACKGROUND AND FUNCTIONS OF THE MANDATORY PROVIDENT FUND SCHEMES AUTHORITY ( THE MPFA ) The MPFA was established in Hong Kong under section 6 of the Mandatory Provident Fund Schemes Ordinance ( the Ordinance ) which came into effect on 24 July The functions of the MPFA are stated under section 6E of the Ordinance. Its office address is Level 16, International Commerce Centre, 1 Austin Road West, Kowloon, Hong Kong. The financial statements are presented in Hong Kong dollars ( HK dollars ), which is the same as the functional currency of the MPFA. 2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs ) The MPFA has not early applied the following new or revised standards, amendments or interpretations that have been issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ) but are not yet effective. The MPFA anticipates that the application of these new and revised standards, amendments or interpretations will have no material impact on the financial statements. HKFRS 7 (amendment) Financial instruments: Disclosures emphasizes the interaction between quantitative and qualitative disclosures about the nature and extent of risks associated with financial instruments. HKFRS 9, Financial instruments ( HKFRS 9 ) addresses the classification, measurement and recognition of financial assets and financial liabilities. HKFRS 9 was issued in November 2009 and October It replaces the parts of HKAS 39 that relate to the classification and measurement of financial instruments. HKFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the HKAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The standard is not applicable until 1 January 2015 but is available for early adoption. HKFRS 13, Fair value measurement ( HKFRS 13 ) improves consistency and reduces complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across HKFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within HKFRSs, effective for annual periods beginning on or after 1 January SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation The financial statements have been prepared under the historical cost basis, except for certain financial instruments, which are measured at fair values, and in accordance with HKFRSs issued by the HKICPA. The preparation of financial statements in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4. Annual Report 2011/12 81

84 MPFA Notes to the Financial Statements (cont d) for the year ended 31 March SIGNIFICANT ACCOUNTING POLICIES (cont d) Basis of preparation (cont d) 3.1 Revenue recognition Fee income consists of application fees, annual fees and financial penalties arising from the occupational retirement schemes and mandatory provident fund schemes. Application fees and annual fees are accounted for on an accrual basis whereas financial penalties are recognised as and when determined and imposed. Interest income from a financial asset is accrued on a time proportionate basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset s net carrying amount. Dividend income from investments is recognised when the shareholders rights to receive payment have been established. 3.2 Financial instruments Financial assets and financial liabilities are recognised on the statement of financial position when the MPFA becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value are recognised immediately in the income and expenditure account. 3.3 Financial assets MPFA s financial assets include financial assets at fair value through profit or loss and loans and receivables. All regular way purchases or sales of financial assets are recognised and derecognised on a trade-date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. Effective interest method is used to calculate the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition. Interest is recognised on an effective interest basis. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss have two subcategories, financial assets held for trading and those designated at fair value through profit or loss on initial recognition. A financial asset other than a financial asset held for trading may be designated at fair value upon initial recognition if: a) such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or b) the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the MPFA s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or c) it forms part of the contract containing one or more embedded derivatives, and HKAS 39 permits the entire combined contract (asset or liability) to be designated at fair value. Investments designated at fair value recognised in the statement of financial position are categorised as financial assets designated at fair value through profit or loss. Subsequent to initial recognition, financial assets at fair value are measured at fair value, with changes in fair value arising from remeasurement recognised directly in the income and expenditure account in the period in which they arise. The net investment income/loss recognised in the income and expenditure account includes any dividend or interest earned on the financial assets. 82 Mandatory Provident Fund Schemes Authority

85 3. SIGNIFICANT ACCOUNTING POLICIES (cont d) Basis of preparation (cont d) 3.3 Financial assets (cont d) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables, including debtors, deposits, unsettled investments receivable, bank deposits and bank balances, are carried at amortised cost using the effective interest method, less any identified impairment losses. 3.4 Impairment of financial assets Financial assets, other than those at fair value, are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected. Objective evidence of impairment could include: a) significant financial difficulty of the issuer or counterparty; b) a breach of contract, such as default or delinquency in interest or principal payments; c) it becoming probable that the borrower will enter bankruptcy or financial re-organisation; d) the disappearance of an active market for that financial asset because of financial difficulties; or e) observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease can not yet be identified with the individual financial assets in the portfolio. For financial assets carried at amortised cost, an impairment loss is recognised in the income and expenditure account when there is objective evidence that the asset is impaired, and is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. The carrying amount of the financial assets is reduced by the impairment loss directly. Subsequent recoveries of amounts previously written off are credited to the income and expenditure account. For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. 3.5 Financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definition of a financial liability. The MPFA s financial liabilities are generally classified as other financial liabilities. Financial liabilities, including creditors, unsettled investments payable and Government Injection of Contributions Project fund, are subsequently measured at amortised cost, using the effective interest method. Effective interest method is used to calculate the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period to the net carrying amount on initial recognition. Derivatives that do not qualify for hedge accounting Derivatives that do not qualify for hedge accounting, such as foreign exchange contracts, are deemed as financial assets held for trading or financial liabilities held for trading. Changes in fair values of such derivatives are recognised directly in the income and expenditure account. Annual Report 2011/12 83

86 MPFA Notes to the Financial Statements (cont d) for the year ended 31 March SIGNIFICANT ACCOUNTING POLICIES (cont d) Basis of preparation (cont d) 3.6 Derecognition Financial assets are derecognised when the rights to receive cash flows from the assets expire or, when the financial assets are transferred and the MPFA has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset s carrying amount and the sum of the consideration received and receivable is recognised in the income and expenditure account. Financial liabilities are derecognised when the obligation specified in the relevant contract, is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in the income and expenditure account. 3.7 Property and equipment Property and equipment are stated at cost less subsequent accumulated depreciation and accumulated impairment losses. Subsequent costs are included in the asset s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the MPFA and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income and expenditure account during the financial period in which they are incurred. Depreciation is provided to write off the cost of items of property and equipment over their estimated useful lives and after taking into account their estimated residual value, using the straight-line method. Property and equipment are depreciated on a straight-line basis as follows: Leasehold improvements Over the remaining terms of the leases or 4 years, whichever is shorter Computer equipment 3-4 years Office equipment and furniture 4 years Motor vehicle 4 years An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising from derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income and expenditure account in the year in which the item is derecognised. 3.8 Intangible Assets Computer software licenses Acquired computer software licenses are capitalised on the basis of costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives, which do not exceed 4 years. Software development costs Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the MPFA are recognised as intangible assets when the following criteria are met: a) it is technically feasible to complete the software product so that it will be available for use; b) management intends to complete the software product and use or sell it; c) there is an ability to use or sell the software product; d) it can be demonstrated how the software product will generate probable future economic benefits; e) adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and f) the expenditure attributable to the software product during its development can be reliably measured. 84 Mandatory Provident Fund Schemes Authority

87 3. SIGNIFICANT ACCOUNTING POLICIES (cont d) Basis of preparation (cont d) 3.8 Intangible Assets (cont d) Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Computer software development costs recognised as assets are amortised over their estimated useful lives, which does not exceed 4 years. 3.9 Projects in progress Projects in progress consist of expenditure of capital projects not yet completed and are not subject to depreciation or amortisation. The resultant asset will be capitalised as property and equipment or intangible assets upon completion. Any internally-generated intangible asset of projects in progress arising from development expenditure is recognised only if it is anticipated that the development costs incurred on a clearly-defined project will produce future economic benefits Impairment of non-financial assets At the end of the reporting period, the MPFA reviews the carrying amounts of its non-financial assets (i.e. non-current assets) to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately Cash and cash equivalent In the statement of cash flows, cash and cash equivalents include cash in hand, cash in transit, cash at banks and other short-term highly liquid investments with original maturities of three months or less Creditors and accrued charges Creditors and accrued charges are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year. If not, they are presented as non-current liabilities. Creditors and accrued charges are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method Foreign currencies In preparing the financial statements of the MPFA, transactions in currencies other than the functional currency of the MPFA are recorded in its functional currency (that is the currency of the primary economic environment in which the MPFA operates) at the rates of exchanges prevailing on the dates of the transactions. At the end of the reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing on that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising from the settlement of monetary items, and on the retranslation of monetary items, are recognised in the income and expenditure account in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the income and expenditure account for the period. Annual Report 2011/12 85

88 MPFA Notes to the Financial Statements (cont d) for the year ended 31 March SIGNIFICANT ACCOUNTING POLICIES (cont d) Basis of preparation (cont d) 3.14 Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating lease. Rentals payable under operating leases are charged to the income and expenditure account on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis Retirement benefit costs Contributions paid or payable to Mandatory Provident Fund schemes are charged as expenses when employees have rendered services entitling them to the benefits. 4. CRITICAL ACCOUNTING ESTIMATES Estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The MPFA makes estimates and assumptions concerning the future. The resulting accounting estimates may not equal the related actual results. The key estimates and assumptions that may cause a material impact to the carrying amounts of assets and liabilities are addressed below. Fair value of derivatives and other financial instruments The valuation of all the MPFA s financial instruments, including over-the-counter debt securities and derivatives, are measured at fair value and the quotations are provided by a reputable independent custodian bank. At 31 March 2012, the fair value of financial instruments held by the MPFA excluding those fair values obtained using quoted prices in active market are based on the market quotations from external sources. These market quotations may be indicative and not executable or legally binding. As such, these market quotations do not necessarily indicate the price at which the security could actually be traded as at 31 March Actual transacted prices may differ from the quotes provided by these external sources. The MPFA considers that in the absence of any other reliable market sources, the quotes available from these sources reflect the best estimate of fair value. Default contributions claims receivables and payables As at the reporting date, the default contribution claims receivable amounted to 8,390,621 (2011: 12,821,503) included in the debtors, deposits and prepayments represents the mandatory contributions that are not paid within the period prescribed by the regulations. Such mandatory contributions become due to the MPFA on the expiry of that period. As at the reporting date, the default contribution claims payable amounted to 8,390,621 (2011: 12,821,503) included in the creditors and accrued charges represents that mandatory contributions which will be received by the MPFA as mentioned above and in turn, payable to the approved trustees for allocation to scheme members MPF accounts in accordance with the Ordinance. The amount of these default contribution claims receivable and payable is best estimated by the MPFA as at the reporting date with the use of certain assumptions. 5. CAPITAL MANAGEMENT The MPFA s objectives when managing capital are: a) to safeguard the MPFA s ability to continue as a going concern, so that it continues to regulate and supervise mandatory provident fund schemes and occupational retirement schemes; and b) to support the MPFA s stability and growth to provide benefits for stakeholders. The MPFA actively and regularly reviews and manages its capital and reserve to ensure optimal returns, taking into consideration the future resources requirements of the MPFA and projected capital expenditures. As in prior years, the MPFA manages its capital and reserve through resources planning measures and regular reviews of the investment strategy. 86 Mandatory Provident Fund Schemes Authority

89 6. FINANCIAL INSTRUMENTS 6.1 Categories of financial instruments Financial assets At fair value 4,715,279,313 4,718,752,532 Loans and receivables (including bank deposits, bank balances and cash) 1,208,386,809 1,647,779,379 Financial liabilities At fair value 6,495,918 8,161,141 Other financial liabilities 766,200,410 1,043,991, Financial risk management objectives and policies MPFA s major financial instruments include bank deposits, bank balances and cash, unsettled investments receivable and payable, debtors and deposits, creditors, derivative financial instruments, debt and equity investments. The MPFA adopts a statistical approach for strategic asset allocation of its investments. The strategic asset allocation is set within a specific risk tolerance level and after consideration of the risk-return trade-off. MPFA s investment portfolio includes cash, debt and equity securities with a target weighting for each asset class. Investment Guidelines approved by the Management Board set out limits and restrictions on credit risk, interest rate risk, price risk, currency risk, liquidity risk, hedging and other activities. These Guidelines are reviewed from time to time. The Finance Committee, one of the standing committees of the MPFA, is responsible for overseeing the investment of all MPFA s funds. Apart from bank deposits that are managed internally, the MPFA contracts out the management of debt and equity securities to external fund managers who make investments in accordance with the global balanced mandates. The fund managers are mandated to invest prudently to achieve principal protection and above-benchmark return. Permissible investments should satisfy requirements in credit rating, concentration limits, listing, minimum market capitalization and marketability as detailed in the Investment Guidelines. Apart from proactive contributions to stock selection, interest rate and currency risk management, each external fund manager is expected to allocate assets between broad asset classes based on fundamentals and judgment of relative values. The deviation margins, measured against the target weighting, are permitted for each asset class. The deviation margins have been set using a risk budgeting approach and are based on the correlation of asset returns between asset classes, and the volatility and expected tracking error of each asset class. The MPFA keeps monitoring its investments with due care and would promptly impose contingent measures relating to the investment exposures in light of financial market conditions. The MPFA has also conducted regular due diligence exercises on the external fund managers compliance and risk management process. In addition, with the efficient management reporting process, management and the Finance Committee are kept abreast of the investment portfolios status as well as the general financial market conditions. 6.3 Credit risk Credit risk is the risk that a counterparty will default on its contractual obligations resulting in financial loss to the MPFA. The investment portfolios can only invest in debt securities that have a minimum credit rating of A- by Standard & Poor s Ratings Services ( S&P ) and A3 by Moody s Investors Service, Inc ( Moody s ). In the event of a split credit rating for a debt securities issue, the Investment Guidelines require that the lower credit rating will apply. The Investment Guidelines require the weighted average credit rating of the total debt securities portfolio to be at or above A+/A1. Annual Report 2011/12 87

90 MPFA Notes to the Financial Statements (cont d) for the year ended 31 March FINANCIAL INSTRUMENTS (cont d) 6.3 Credit risk (cont d) As at the reporting date, the credit risk profile as weighted by market value (including accrued interest) was: Credit rating 2012 % of net assets 2011 % of net assets AAA 1 164,898, ,638,524, AA 2 2,553,297, ,040,307, A 3 924,722, ,170, AAA means AAA by S&P and Aaa by Moody's 2 AA means between AA- and AA+ by S&P and Aa3 and Aa1 by Moody's 3 A means between A- and A+ by S&P and A3 and A1 by Moody's 3,642,918, ,609,001, The weighted average credit rating of the total debt securities portfolio is AA-/Aa3. The MPFA does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The MPFA s credit risk exposure on bank deposits, bank balances and derivative financial instruments is limited because the counterparties are banks and other financial institutions with high credit ratings (investment grade or above) assigned by international credit rating agencies and are approved by the Finance Committee from time to time. In addition, the credit exposures are guarded by the Investment Guidelines which set out limits and restrictions on the total exposure to a single bank or an issuer of debt securities in order to mitigate concentration risk to a single counterparty. The maximum exposure to credit risk at year end is the carrying amount of the financial assets as shown on the statement of financial position. As at 31 March 2012 and 2011, none of the assets is impaired nor past due but not impaired. 6.4 Interest rate risk Interest rate risk is the risk that the fair value or future cash flow of a financial asset will fluctuate due to changes in interest rates. The exposure to interest rate risk on bank deposits and bank balances carrying interest are limited to the impact of the interest rate fluctuations on the interest income. The MPFA adopts a sensitivity test of 10 basis points (2011: 10 basis points) movement to measure such impact. If the interest rates on the bank deposits and bank balances had moved up or down by 10 basis points (2011: 10 basis points) on average throughout the year, with all other variables being held constant, income for the year would have increased or decreased by 1.1 million (2011: 1.4 million). The investment portfolios are exposed to the interest rate risk in relation to holdings in debt securities. The fund managers may mitigate such risk by reducing the weighting of debt securities in the portfolios and hold either more cash or equities within the permitted deviation margins from the target weighting. The fund managers may further reduce duration risk, i.e. price sensitivity to changes in interest rate, by reducing the debt securities portfolio duration by up to three years below the benchmark duration. The benchmark duration is a composite of durations of chosen bond indices. On the other hand, the fund managers may also increase duration risk by up to two years above the benchmark duration. As at the reporting date, the average debt securities portfolio duration versus that of the benchmark is set out below: Benchmark duration 4.91 years 4.80 years Portfolio duration 4.58 years 4.54 years The MPFA measures the interest rate risks through Price Value of Basis Point ( PVBP ). PVBP is a sensitivity test to measure the fluctuation of potential gain or loss on interest rate positions upon a basis point movement. 88 Mandatory Provident Fund Schemes Authority

91 6. FINANCIAL INSTRUMENTS (cont d) 6.4 Interest rate risk (cont d) The MPFA adopts a sensitivity test of 10 basis points (2011: 10 basis points) movements. As at the reporting date, if interest rate had fluctuated 10 basis points (2011: 10 basis points) and all other variables were held constant, the impact on the MPFA s income would have been as follows. Increase/(decrease) in the MPFA s income If interest rate were 10 basis points lower 16,680,908 16,382,915 If interest rate were 10 basis points higher (16,680,908) (16,382,915) 6.5 Price risk Price risk is the risk that the price of a security or a portfolio of securities will fluctuate due to market changes. Price risk consists of both systematic risk, which is also known as market return risk, and non-systematic risk, which can be largely eliminated by diversification in accordance with the Investment Guidelines. The investment portfolios are investments designated at fair value and are measured at fair value as at each reporting date. The MPFA manages this price risk exposure by maintaining a portfolio of investments with different risk profiles. There is a portfolio diversification benefit by virtue of different degrees of lesser than perfect correlation between different invested asset classes. Control on the concentration of investments has been set out in the Investment Guidelines in order to ensure that the investment portfolios are well diversified. The inclusion of cash in the benchmark portfolio further helps to control price risk. The investment performance is reported to the Finance Committee and the Management Board on a regular basis. As at 31 March 2012, if the Equity Market Note had increased or decreased by 10% (2011: 10%), with all other variables being held constant and all the equity instruments moved according to the historical relationship with the Equity Market, income for the year would have been million higher or lower (2011: million). Note Equity Market consists of markets in which the MPFA is authorized to invest in accordance with the Investment Guidelines. 6.6 Currency risk Currency risk is the risk of loss on an asset or liability denominated in foreign currency due to changes in the foreign exchange rates. Apart from investment portfolios, most of the MPFA s assets and liabilities are in HK dollar or US dollar and minimal currency risk is expected due to the linked exchange rate system in Hong Kong. MPFA s Investment Guidelines for the investment portfolios only allow investments in assets denominated in freely convertible currencies. The investment portfolios must maintain a currency exposure of over 85% in HK dollar and US dollar with the remaining in foreign currency securities but not through currency trading. To meet this requirement, fund managers are permitted to hedge related currency risks by acquiring forward currency contracts. However, the over-hedging position for each foreign currency must not exceed 10% of the value of the investments denominated in the same currency and the total over-hedging position must not exceed 1% of the investment portfolio. The unhedged currency positions of the investment portfolio are measured and reported to the MPFA s management and the Finance Committee on a regular basis. Owing to the linked exchange rate system in Hong Kong, MPFA s currency risk primarily stems from the exposure to foreign currencies other than the US dollar. Other currencies shown in the tables below include euro, pound sterling, Australian dollar, Japanese yen, Singapore dollar etc. The net financial assets of each type of foreign currencies in terms of HK dollar equivalent is not material. Also, as most of the foreign exchange exposures are well hedged by acquiring forward currency contracts, the exposure is considered as not significant and sensitivity analysis is hence not provided. Annual Report 2011/12 89

92 MPFA Notes to the Financial Statements (cont d) for the year ended 31 March FINANCIAL INSTRUMENTS (cont d) 6.6 Currency risk (cont d) As at the reporting date, the currency exposure of the MPFA is given below: 2012 HK dollar equivalent % US dollar equivalent % Others equivalent % Total equivalent Financial assets Investments designated at fair value 1,742,041,550 37% 2,477,565,891 53% 493,240,666 10% 4,712,848,107 Derivative financial instruments 10,000,000 2% 390,712,294 90% 34,572,977 8% 435,285,271 Unsettled investments receivable 9,233,513 18% 40,841,777 79% 1,705,528 3% 51,780,818 Debtors and deposits 16,154,401 99% - 0% 133,036 1% 16,287,437 Bank deposits 200,129,127 87% - 0% 30,426,473 13% 230,555,600 Bank balances and cash 104,948,804 12% 803,946,687 88% 867,463 0% 909,762,954 2,082,507,395 33% 3,713,066,649 58% 560,946,143 9% 6,356,520,187 Financial liabilities Derivative financial instruments - 0% 44,389,297 10% 394,960,686 90% 439,349,983 Unsettled investments payable 1,011,103 0% 728,853,705 99% 8,653,227 1% 738,518,035 Creditors and accrued charges 27,682, % - 0% - 0% 27,682,376 28,693,479 2% 773,243,002 64% 403,613,913 34% 1,205,550,394 2,053,813,916 40% 2,939,823,647 57% 157,332,230 3% 5,150,969, HK dollar equivalent % US dollar equivalent % Others equivalent % Total equivalent Financial assets Investments designated at fair value 1,693,492,581 36% 2,482,788,959 53% 541,128,997 11% 4,717,410,537 Derivative financial instruments 12,836 0% 520,569,511 75% 176,404,243 25% 696,986,590 Unsettled investments receivable 13,594,872 7% 163,996,174 90% 5,824,690 3% 183,415,736 Debtors and deposits 16,000, % - 0% 8,723 0% 16,008,914 Bank deposits 241,402,243 94% - 0% 16,098,115 6% 257,500,358 Bank balances and cash 180,192,299 15% 1,004,674,790 84% 5,987,282 1% 1,190,854,371 2,144,695,022 30% 4,172,029,434 59% 745,452,050 11% 7,062,176,506 Financial liabilities Derivative financial instruments 12,359,841 2% 164,118,999 23% 527,326,896 75% 703,805,736 Unsettled investments payable 21,921,334 2% 976,495,430 96% 21,263,510 2% 1,019,680,274 Creditors and accrued charges 24,311, % - 0% - 0% 24,311,194 58,592,369 3% 1,140,614,429 65% 548,590,406 32% 1,747,797,204 2,086,102,653 39% 3,031,415,005 57% 196,861,644 4% 5,314,379, Mandatory Provident Fund Schemes Authority

93 6. FINANCIAL INSTRUMENTS (cont d) 6.7 Liquidity risk Liquidity risk is the potential that the MPFA will encounter difficulty in raising funds to meet its cash commitments. Liquidity risk may result from the need to sell financial assets quickly at their fair values; counterparties failure to settle a contractual obligation; or inability to generate cash flows as anticipated. The MPFA does not have any borrowing and therefore has no repayment liability owing to debt. The MPFA maintains sufficient short-term liquidity to fund its operations and runs a bank deposit portfolio to achieve reasonable return on cash. Monthly cash flow forecasting is performed to estimate the cash required for operations, including payment for goods/ services, office accommodation expenses and payroll. As at the reporting date, MPFA held cash and deposits of 1,140,318,554 (2011: 1,448,354,729) that are of short maturity and will be due orderly. Therefore, liquidity risk is considered to be minimal. The following table summarises the contractual maturity in relation to non-derivative financial liabilities and derivative instruments. For non-derivative financial liabilities, the figures are undiscounted cash flows of financial liabilities based on the earliest date on which the MPFA is required to pay. The cash flows include both principal and interest. For derivative instruments requiring gross settlement, the figures represent undiscounted gross inflows or outflows on these derivatives month 1-3 months >3 months 1 month 1-3 months >3 months Non-derivatives financial liabilities Unsettled investments payable 1 738,518, ,019,680, Creditors and accrued charges 18,748,266 6,666,243 2,267,867 19,349,589 2,645,714 2,315,891 Total 757,266,301 6,666,243 2,267,867 1,039,029,863 2,645,714 2,315,891 Derivatives gross settlement Foreign currency forward contracts Inflows (298,671,047) (136,614,224) - (421,955,460) (275,031,130) - Outflows 302,248, ,101, ,433, ,372,381 - Total 3,577, ,530-6,477, ,251-1 The fund managers are not allowed to borrow money for the managed portfolios or hold a negative cash position on a trade date basis. 6.8 Fair values The fair values of financial assets and financial liabilities are determined as follows: The fair values of listed investments and unlisted investments with standard terms and conditions are determined by reference to bid prices quoted in active markets and over-the-counter market quotations respectively. The fair values of derivative financial instruments are determined based on the quoted market prices for equivalent instruments as at the reporting date. The fair values of other financial assets and financial liabilities stated at amortised costs approximate the corresponding carrying amounts. Annual Report 2011/12 91

94 MPFA Notes to the Financial Statements (cont d) for the year ended 31 March FINANCIAL INSTRUMENTS (cont d) 6.9 Fair value measurements recognised in the statement of financial position The MPFA has adopted the amendment to HKFRS 7. This requires the MPFA to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. a) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets or liabilities; b) Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and c) Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). As at the reporting date, the fair values of the financial assets and liabilities are set out below: 2012 Level 1 Level 2 Level 3 Total Financial assets Equity securities 1,069,929, ,069,929,288 Debt securities 2,634,837,060 1,008,081,759-3,642,918,819 Derivative financial instruments 2,431, ,431,206 3,707,197,554 1,008,081,759-4,715,279,313 Financial liabilities Derivative financial instruments 6,495, ,495,918 6,495, ,495, Level 1 Level 2 Level 3 Total Financial assets Equity securities 1,108,408, ,108,408,710 Debt securities 2,588,820,204 1,020,181,623-3,609,001,827 Derivative financial instruments 1,341, ,341,995 3,698,570,909 1,020,181,623-4,718,752,532 Financial liabilities Derivative financial instruments 8,161, ,161,141 8,161, ,161,141 During the year ended 31 March 2012 and 2011, no financial assets or financial liabilities were classified under Level 3 and there was no transfer between levels. 92 Mandatory Provident Fund Schemes Authority

95 7. NET INVESTMENT INCOME Interest income on investments designated at fair value 98,985, ,424,226 Dividends from investments designated at fair value 29,616,246 27,232,402 Net realised gain on investments designated at fair value 1 89,158, ,995,778 Net change in unrealised gain on investments designated at fair value 2 19,544,025 51,561,504 Net realised (loss) on derivative financial instruments (2,936,999) (20,406,676) Net change in unrealised gain / (loss) on derivative financial instruments 2,754,435 (13,180,313) 237,121, ,626,921 1 The amount included net realised foreign exchange gain of 8,490,562 (2011: 14,367,888) from foreign currency securities. 2 The amount included net change in unrealised foreign exchange (loss) of 24,039,049 (2011: 37,947,850 gain) from foreign currency securities. 8. TAXATION No provision for Hong Kong Profits Tax has been made in the financial statements as the MPFA is exempt from Hong Kong Profits Tax under section 88 of the Inland Revenue Ordinance. 9. STAFF COSTS Salary and performance related remuneration 241,254, ,254,657 Defined contribution plan expense 17,421,820 16,257,520 Staff benefits 5,286,265 4,837, ,962, ,349,753 The MPFA operates three Mandatory Provident Fund Schemes ( the Schemes ) for all qualifying employees. The assets of the Schemes are held separately from those of the MPFA and are under the control of trustees. The total expenses recognised in the income and expenditure account represents contributions paid or payable to the Schemes at rates specified in the participation rules. As at 31 March 2012, contributions of 290,159 were due but not yet paid over to the Schemes (2011: 291,449). Annual Report 2011/12 93

96 MPFA Notes to the Financial Statements (cont d) for the year ended 31 March DIRECTORS EMOLUMENTS The emoluments of all directors for the years ended 31 March 2012 and 2011 are set out below: Fees Salaries and other benefits 2012 Contributions to MPF schemes Variable pay Total emoluments Executive Directors Diana Chan Tong Chee-ching - 4,296, , ,110 5,550,445 Hendena Yu - 3,316, , ,900 4,284,984 Cynthia Hui Wai-yee - 2,454, , ,008 3,106,624 Darren Mark McShane - 3,743, , ,600 4,832,572 Thomas Yiu Kei-chung - 2,658, , ,380 3,435,412 Non-Executive Directors Anna Wu Hung-yuk Au King-chi K C Chan Matthew Cheung Kin-chung Ip Kwok-him Andrew Leung Kwan-yuen Li Fung-ying Paddy Lui Wai-yu John Poon Cho-ming Paul Tang Kwok-wai Philip Tsai Wing-chung Wong Kwok-kin Rimsky Yuen Kwok-keung ,469,111 1,915,928 2,824,998 21,210,037 1 Alternate to K C Chan. 2 Alternate to Matthew Cheung Kin-chung. Fees Salaries and other benefits 2011 Contributions to MPF schemes Variable pay Total emoluments Executive Directors Diana Chan Tong Chee-ching - 4,302, , ,110 5,556,053 Hendena Yu - 3,215, , ,270 4,152,928 Cynthia Hui Wai-yee - 2,409, , ,335 3,050,473 Darren Mark McShane - 3,663, , ,746 4,729,814 Thomas Yiu Kei-chung - 2,484, , ,880 3,210,858 Non-Executive Directors Anna Wu Hung-yuk Au King-chi K C Chan Matthew Cheung Kin-chung Ip Kwok-him Leo Kung Lin-cheng Angelina Lee Wong Pui-ling Andrew Leung Kwan-yuen Li Fung-ying Paddy Lui Wai-yu John Poon Cho-ming David Sun Tak-kei Paul Tang Kwok-wai Philip Tsai Wing-chung Wong Kwok-kin Wong Ting-kwong Rimsky Yuen Kwok-keung ,075,940 1,868,845 2,755,341 20,700,126 1 Alternate to K C Chan. 2 Appointment effective from 17 March Retired as from 17 March Alternate to Matthew Cheung Kin-chung. 94 Mandatory Provident Fund Schemes Authority

97 11. EMPLOYEES EMOLUMENTS Of the five individuals with the highest emoluments in the MPFA, all were Executive Directors, whose emoluments are included in note 10 above. The emoluments of the five highest paid individuals were within the following bands: 2012 Number of employees 2011 Number of employees 3,000,001 to 3,500, ,500,001 to 4,000, ,000,001 to 4,500, ,500,001 to 5,000, ,000,001 to 5,500, ,500,001 to 6,000, PROPERTY AND EQUIPMENT Leasehold improvements Computer equipment Office equipment and furniture Motor vehicle Total COST At 1 April ,530,139 28,059,284 22,522, ,456 76,936,331 Additions 4,959,053 3,657,274 5,020,830-13,637,157 Disposals - (1,195,303) (3,200,618) - (4,395,921) At 31 March ,489,192 30,521,255 24,342, ,456 86,177,567 Additions 326,620 2,386, ,213-3,232,392 Disposals (11,530) (1,553,452) (3,695,912) - (5,260,894) At 31 March ,804,282 31,354,362 21,165, ,456 84,149,065 DEPRECIATION At 1 April ,096,203 20,371,565 15,546, ,052 52,409,264 Charge for the year 5,625,657 4,231,563 3,944, ,114 14,007,773 Eliminated on disposals - (1,194,967) (3,105,114) - (4,300,081) At 31 March ,721,860 23,408,161 16,385, ,166 62,116,956 Charge for the year 5,096,016 3,289,055 3,709, ,114 12,300,510 Eliminated on disposals (11,530) (1,538,672) (3,695,582) - (5,245,784) At 31 March ,806,346 25,158,544 16,399, ,280 69,171,682 CARRYING AMOUNT At 31 March ,997,936 6,195,818 4,766,453 17,176 14,977,383 At 31 March ,767,332 7,113,094 7,956, ,290 24,060,611 Annual Report 2011/12 95

98 MPFA Notes to the Financial Statements (cont d) for the year ended 31 March INTANGIBLE ASSETS Computer software licenses Software development cost Total COST At 1 April ,034,062 48,041,656 64,075,718 Additions 1,469, ,727 2,216,261 Disposals (1,329,951) (3,405,917) (4,735,868) At 31 March ,173,645 45,382,466 61,556,111 Additions 3,296,537 4,853,007 8,149,544 Disposals At 31 March ,470,182 50,235,473 69,705,655 AMORTISATION At 1 April ,922,884 43,738,648 56,661,532 Charge for the year 1,640,287 2,047,705 3,687,992 Eliminated on disposals (1,329,951) (2,224,688) (3,554,639) At 31 March ,233,220 43,561,665 56,794,885 Charge for the year 1,802,727 1,320,484 3,123,211 Eliminated on disposals At 31 March ,035,947 44,882,149 59,918,096 CARRYING AMOUNT At 31 March ,434,235 5,353,324 9,787,559 At 31 March ,940,425 1,820,801 4,761, PROJECTS IN PROGRESS Projects in progress consisted of expenditure of capital projects not yet completed at 31 March 2012 amounting to 5,503,927 (2011: 3,218,377). 15. INVESTMENTS DESIGNATED AT FAIR VALUE Equity securities Listed 1,069,929,288 1,108,408,710 Debt securities Listed 1,457,620,913 1,472,683,375 Unlisted 2,185,297,906 2,136,318,452 3,642,918,819 3,609,001,827 Total Listed 2,527,550,201 2,581,092,085 Unlisted 2,185,297,906 2,136,318,452 4,712,848,107 4,717,410, Mandatory Provident Fund Schemes Authority

99 16. DERIVATIVE FINANCIAL INSTRUMENTS Assets Liabilities Assets Liabilities Foreign currency forward contracts 2,431,206 6,495,918 1,341,995 8,161,141 The above derivatives are not under hedge accounting and are measured at fair value at each reporting date. The notional principal amount of the outstanding foreign currency forward contracts as at 31 March 2012 is 439,349,983 (2011: 703,805,736). The contractual maturity of these foreign exchange forward contracts is within 12 months. 17. CAPITAL GRANT On 3 April 1998, the Finance Committee of the Legislative Council of the Hong Kong Special Administrative Region approved a capital grant of 5 billion as initial funding to cover the establishment and operating costs of the MPFA. 18. LOANS TO DIRECTORS AND EXECUTIVES There were no loans to directors or executives during the year and no loans were outstanding at 31 March 2012 and CAPITAL COMMITMENTS At the reporting date, the MPFA had commitments for capital expenditure in respect of the acquisition of property and equipment and intangible assets as follows: Contracted but not provided for 2,970,269 2,631,317 Authorised but not contracted for 433,090 2,266, ,403,359 4,897, OPERATING LEASE COMMITMENTS Operating lease payments represent rental payable by the MPFA for its office premises and storage space. Office leases are with terms from one year to eight years. At the reporting date, the MPFA had commitments for future minimum lease payments under non-cancellable operating leases as follows: Within one year 39,984,373 44,587,660 In the second to fifth year inclusive 73,559, ,263,727 Over five years - 5,103, ,544, ,955, MANDATORY PROVIDENT FUND SCHEMES COMPENSATION FUND Section 17 of the Ordinance requires the MPFA to establish a compensation fund and the MPFA may appoint an administrator for the compensation fund or where there is no such administrator, the MPFA must administer the compensation fund. The MPFA was appointed as the administrator of the compensation fund until 31 March The Mandatory Provident Fund Schemes (General) Regulation requires the compensation fund to be maintained in separate bank accounts and separate financial statements are to be prepared in respect of the fund. The MPFA has not charged any administration fee to this compensation fund during the year 2012 and Annual Report 2011/12 97

100 MPF SCHEMES COMPENSATION FUND Independent Auditor s Report TO THE ADMINISTRATOR OF THE MANDATORY PROVIDENT FUND SCHEMES COMPENSATION FUND ( THE FUND ) (Established in Hong Kong under the Mandatory Provident Fund Schemes Ordinance) We have audited the financial statements of the Fund set out on pages 99 to 110, which comprise the statement of financial position as at 31 March 2012, the income and expenditure account, the statement of comprehensive income, the statement of changes in capital and reserve and the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. THE ADMINISTRATOR S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS The Administrator is responsible for the preparation of financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants, and for such internal control as the Administrator determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. AUDITOR S RESPONSIBILITY Our responsibility is to express an opinion on these financial statements based on our audit and to report our opinion solely to you, as a body, in accordance with section 184 of the Mandatory Provident Fund Schemes (General) Regulation and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Administrator, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. OPINION In our opinion, the financial statements give a true and fair view of the state of the Fund s affairs as at 31 March 2012, and of its surplus and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards. PricewaterhouseCoopers Certified Public Accountants Hong Kong, 19 June Mandatory Provident Fund Schemes Authority

101 MPF SCHEMES COMPENSATION FUND Income and Expenditure Account for the year ended 31 March 2012 NOTE INCOME Levy fee 115,031, ,457,642 Interest income on bank deposits 15,236,410 7,772,993 Net investment (loss) / gain 6 (5,332,132) 9,647, ,935, ,877,866 EXPENDITURE Auditor s remuneration 73,000 65,000 Investment expenses 70,485 68,262 Other operating expenses 3,189 2, , ,970 SURPLUS FOR THE YEAR 124,788, ,741,896 The accompanying notes form an integral part of these financial statements. Annual Report 2011/12 99

102 MPF SCHEMES COMPENSATION FUND Statement of Comprehensive Income for the year ended 31 March 2012 The Fund had no components of comprehensive income other than surplus for the year in either of the years presented. Accordingly, no separate statement of comprehensive income is presented as the Fund s total comprehensive income was the same as the surplus for the year in both years. The accompanying notes form an integral part of these financial statements. 100 Mandatory Provident Fund Schemes Authority

103 MPF SCHEMES COMPENSATION FUND Statement of Financial Position at 31 March 2012 NOTES CURRENT ASSETS Investments designated at fair value 8 363,361, ,267,038 Levy fees receivable 113,913, ,791,593 Interest receivable on bank deposits 6,766,870 3,116,906 Bank deposits 1,157,093,927 1,055,413,079 Bank balances 351, ,797 1,641,487,618 1,516,694,413 CURRENT LIABILITIES Creditors and accrued charges 58,674 54,285 NET ASSETS 1,641,428,944 1,516,640,128 CAPITAL AND RESERVE Seed money 9 600,000, ,000,000 Income and expenditure account 1,041,428, ,640,128 1,641,428,944 1,516,640,128 The financial statements on pages 99 to 110 were approved and authorised for issue by the Mandatory Provident Fund Schemes Authority on 19 June 2012 and signed on its behalf by: Diana Chan Managing Director The accompanying notes form an integral part of these financial statements. Annual Report 2011/12 101

104 MPF SCHEMES COMPENSATION FUND Statement of Changes in Capital and Reserve for the year ended 31 March 2012 Seed Money Income and Expenditure Account Total At 1 April ,000, ,898,232 1,387,898,232 Surplus for the year - 128,741, ,741,896 At 31 March ,000, ,640,128 1,516,640,128 Surplus for the year - 124,788, ,788,816 At 31 March ,000,000 1,041,428,944 1,641,428,944 The accompanying notes form an integral part of these financial statements. 102 Mandatory Provident Fund Schemes Authority

105 MPF SCHEMES COMPENSATION FUND Statement of Cash Flows for the year ended 31 March OPERATING ACTIVITIES Surplus for the year 124,788, ,741,896 Adjustments for : Interest income on bank deposits (15,236,410) (7,772,993) Interest income on investments designated at fair value (3,906,434) (5,279,164) Dividends from investments designated at fair value (1,728,720) (1,591,520) Net loss / (gains) on investments designated at fair value 10,967,286 (2,776,547) Operating cash flows before movements in working capital 114,884, ,321,672 Increase in levy fees receivable (2,122,335) (17,643,591) Increase / (decrease) in creditors and accrued charges 4,389 (25,340) NET CASH FROM OPERATING ACTIVITIES 112,766,592 93,652,741 INVESTING ACTIVITIES Dividends received from investments designated at fair value 1,728,720 1,591,520 Interest received on bank deposits 11,586,446 6,457,783 Interest received from investments designated at fair value 4,201,366 5,319,443 Proceeds on disposals of investments designated at fair value 260,357, ,461,000 Purchase of investments designated at fair value (288,714,266) (287,448,743) Increase in bank deposits (101,680,848) (81,235,203) NET CASH USED IN INVESTING ACTIVITIES (112,521,382) (93,854,200) NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 245,210 (201,459) CASH AND CASH EQUIVALENTS AT 1 APRIL 105, ,256 CASH AND CASH EQUIVALENTS AT 31 MARCH 351, ,797 ANALYSIS OF CASH AND CASH EQUIVALENTS Bank balances 301,007 55,797 Bank balances held for investment purposes 50,000 50, , ,797 The accompanying notes form an integral part of these financial statements. Annual Report 2011/12 103

106 MPF SCHEMES COMPENSATION FUND Notes to the Financial Statements for the year ended 31 March PURPOSE AND CLAIM FOR PAYMENT The Mandatory Provident Fund Schemes Compensation Fund ( the Fund ) was established under section 17 of the Mandatory Provident Fund Schemes Ordinance ( the Ordinance ) which came into effect on 12 March 1999 for the purpose of compensating members of registered Mandatory Provident Fund schemes and other persons who have beneficial interests in those schemes for losses of accrued benefits that are attributable to misfeasance or illegal conduct committed by the approved trustees of those schemes or by other persons concerned with the administration of those schemes. The application for compensation from the Fund has to be made to a court of law in accordance with the Ordinance. The Administrator shall then make the compensation fund payment pursuant to the decisions of the court. During the year, the Mandatory Provident Fund Schemes Authority ("the MPFA") was the Administrator of the Fund. The MPFA has not charged any administration fee to the Fund during the year 2012 and The MPFA s office address is Level 16, International Commerce Centre, 1 Austin Road West, Kowloon, Hong Kong. The financial statements are presented in Hong Kong dollars ( HK dollars ), which is the same as the functional currency of the Fund. 2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS ( HKFRSs ) The Fund has not early applied the following new or revised standards, amendments or interpretations that have been issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ) but are not yet effective. The Fund anticipates that the application of these new and revised standards, amendments or interpretations will have no material impact on the financial statements. HKFRS 7 (amendment) Financial instruments: Disclosures emphasizes the interaction between quantitative and qualitative disclosures about the nature and extent of risks associated with financial instruments. HKFRS 9, Financial instruments ( HKFRS 9 ) addresses the classification, measurement and recognition of financial assets and financial liabilities. HKFRS 9 was issued in November 2009 and October It replaces the parts of HKAS 39 that relate to the classification and measurement of financial instruments. HKFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the HKAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The standard is not applicable until 1 January 2015 but is available for early adoption. HKFRS 13, Fair value measurement ( HKFRS 13 ) improves consistency and reduces complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across HKFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within HKFRSs, effective for annual periods beginning on or after 1 January SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation The financial statements have been prepared under the historical cost basis, except for certain financial instruments, which are measured at fair values, and in accordance with HKFRSs issued by the HKICPA. 3.1 Revenue recognition Levy fee consists of fees charged to the approved trustees of registered Mandatory Provident Fund schemes and is accounted for on an accrual basis. 104 Mandatory Provident Fund Schemes Authority

107 3. SIGNIFICANT ACCOUNTING POLICIES (cont d) Basis of preparation (cont d) 3.1 Revenue recognition (cont d) Interest income from a financial asset is accrued on a time proportionate basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset s net carrying amount. Dividend income from investments is recognised when the shareholders rights to receive payment have been established. 3.2 Financial instruments Financial assets and financial liabilities are recognised on the statement of financial position when the Fund becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value are recognised immediately in the income and expenditure account. 3.3 Financial assets The Fund s financial assets include financial assets at fair value through profit or loss and loans and receivables. All regular way purchases or sales of financial assets are recognised and derecognised on a trade-date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. Effective interest method is used to calculate the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition. Interest is recognised on an effective interest basis. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss have two subcategories, financial assets held for trading and those designated at fair value through profit or loss on initial recognition. A financial asset other than a financial asset held for trading may be designated at fair value upon initial recognition if: a) such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or b) the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Fund's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or c) it forms part of the contract containing one or more embedded derivatives and HKAS 39 permits the entire combined contract (asset or liability) to be designated at fair value. Investments designated at fair value recognised in the statement of financial position are categorised as financial assets designated at fair value through profit or loss. Subsequent to initial recognition, financial assets at fair value are measured at fair value, with changes in fair value arising from remeasurement recognised directly in the income and expenditure account in the period in which they arise. The net investment income/loss recognised in the income and expenditure account includes any dividend or interest earned on the financial assets. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables, including levy fees receivable, bank deposits and bank balances, are carried at amortised cost using the effective interest method, less any identified impairment losses. Annual Report 2011/12 105

108 MPF SCHEMES COMPENSATION FUND Notes to the Financial Statements (cont d) for the year ended 31 March SIGNIFICANT ACCOUNTING POLICIES (cont d) Basis of preparation (cont d) 3.4 Impairment of financial assets Financial assets, other than those at fair value, are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired and impairment losses are incurred where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected. Objective evidence of impairment could include: a) significant financial difficulty of the issuer or counterparty; b) a breach of contract, such as default or delinquency in interest or principal payments; c) it becoming probable that the borrower will enter bankruptcy or financial re-organisation; d) the disappearance of an active market for that financial asset because of financial difficulties; or e) observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease can not yet be identified with the individual financial assets in the portfolio. For financial assets carried at amortised cost, an impairment loss is recognised in the income and expenditure account when there is objective evidence that the asset is impaired, and is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. The carrying amount of the financial assets is reduced by the impairment loss directly. Subsequent recoveries of amounts previously written off are credited to the income and expenditure account. For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. 3.5 Financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definition of a financial liability. The Fund s financial liabilities are generally classified as other financial liabilities, they are subsequently measured at amortised cost using the effective interest method. Effective interest method is used to calculate the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period to the net carrying amount on initial recognition. 3.6 Derecognition Financial assets are derecognised when the rights to receive cash flows from the assets expire or, when the financial assets are transferred and the Fund has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset s carrying amount and the sum of the consideration received and receivable is recognised in the income and expenditure account. Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in the income and expenditure account. 3.7 Cash and cash equivalents In the statement of cash flows, cash and cash equivalents include cash in hand, cash in transit, cash at banks, and other short-term highly liquid investments with original maturities of three months or less. 106 Mandatory Provident Fund Schemes Authority

109 3. SIGNIFICANT ACCOUNTING POLICIES (cont d) Basis of preparation (cont d) 3.8 Creditors and accrued charges Creditors and accrued charges are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year. If not, they are presented as non-current liabilities. Creditors and accrued charges are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 4. CAPITAL MANAGEMENT The Fund s objectives when managing capital are: a) to safeguard the Fund s ability to continue as a going concern, so that it continues to carry out its statutory functions; and b) to support the Fund s stability and growth to provide benefits under its statutory function. The Administrator of the Fund actively and regularly reviews and manages its capital and reserve to ensure optimal returns, taking into consideration the future resources requirements. As in prior years, the Administrator manages the Fund s capital and reserve through regular reviews of the levy fee level and investment strategy. 5. FINANCIAL INSTRUMENTS 5.1 Categories of financial instruments Financial assets At fair value 363,361, ,267,038 Loans and receivables (including bank deposits and bank balances) 1,278,125,732 1,170,427,375 Financial liabilities Other financial liabilities 58,674 54, Financial Risk Management Objectives and Policies The Fund s major financial instruments include bank deposits and bank balances, levy fees receivable, equity and debt securities investments. The strategic investment allocation was set using a statistical approach. A set of Investment Guidelines approved by the MPFA s Management Board is in place to lay down limits and restrictions on currency risk, interest rate risk, credit risk and general activities. Regular reviews on the Investment Guidelines will be conducted. The Finance Committee, one of the standing committees of the MPFA, is responsible for overseeing the investments of the Fund. The Fund maintains a fairly high percentage of cash investment, i.e. HK dollar deposits. Debt securities investments are of short maturity and therefore are subject to relatively low price risk. The investment in equities accounted for less than 5% (2011: less than 5%) of the total investments (including bank deposits). Equity securities are managed with a passive investment style and their weightings are re-balanced to maintain the strategic asset allocation within the tolerance limit. The investment performance is reported to the Finance Committee and the Management Board on a regular basis. 5.3 Credit risk Credit risk is the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Fund. Permissible debt securities investments have to satisfy the requirements of the credit rating specified in the Investment Guidelines. The investment portfolio is managed in-house. The portfolio must invest only into debt securities of investment grade. As at the reporting date, the credit risk profile as weighted by market value (including accrued interest) is set out below: Annual Report 2011/12 107

110 MPF SCHEMES COMPENSATION FUND Notes to the Financial Statements (cont d) for the year ended 31 March FINANCIAL INSTRUMENTS (cont d) 5.3 Credit risk (cont d) Credit rating 2012 % of net assets 2011 % of net assets AA Note 306,286, ,097, Note AA means between AA- and AA+ by Standard & Poor s Ratings Services ( S&P ) and Aa3 and Aa1 by Moody's Investors Services, Inc. ( Moody s ) The Fund does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The Fund s credit risk exposure on bank deposits and bank balances is limited because the counterparties are banks and other financial institutions with high credit ratings (investment grade or above) assigned by international credit rating agencies and are approved by the Finance Committee from time to time. In addition, the credit exposures are guarded by the Investment Guidelines which set out limits and restrictions on the total exposure to a single bank or an issuer of debt securities. The maximum exposure to credit risk at year end is the carrying amount of the financial assets as shown on the statement of financial position. As at 31 March 2012 and 2011, none of the assets is impaired nor past due but not impaired. 5.4 Interest rate risk Interest rate risk is the risk that the fair value and/or future cash flow of a financial asset will fluctuate due to changes in interest rates. The exposure to interest rate risk on bank deposits and bank balances carrying interest are limited to the impact of the interest rate fluctuations on the interest income. The Fund adopts a sensitivity test of 10 basis points movement to measure such impact. If the interest rates on the bank deposits and bank balances had moved up or down by 10 basis points (2011: 10 basis points) on average throughout the year, with all other variables being held constant, income for the year would have increased or decreased by 1.2 million (2011: 1.1 million). The investment portfolio is exposed to the interest rate risk in relation to holdings in debt securities. Such risks may be mitigated by reducing the asset weighting and portfolio duration of the debt securities portfolio. The Fund invests mainly in short-term HK dollar debt securities of up to two years maturity. As at the reporting date, the debt securities portfolio duration is set out below: Portfolio duration 0.42 years 0.77 years The Fund measures the interest rate risks through Price Value of Basis Point ( PVBP ). PVBP is a sensitivity test to measure the fluctuation of potential gain or loss on interest rate positions upon a basis point movement. The Fund adopts a sensitivity test of 10 basis points movements. As at the reporting date, if interest rate had fluctuated 10 basis points (2011: 10 basis points) and all other variables were held constant, the impact on the Fund s income would have been as follows. Increase / (decrease) in the Fund s income If interest rate were 10 basis points lower 128, ,727 If interest rate were 10 basis points higher (128,133) (216,727) Mandatory Provident Fund Schemes Authority

111 5. FINANCIAL INSTRUMENTS (cont d) 5.5 Price risk Price risk is the risk that the price of a security or a portfolio of securities will fluctuate due to market changes. Price risk consists of both systematic risk, which is also known as market price risk, and non-systematic risk, which can be largely eliminated by diversification in accordance with the Investment Guidelines. As at 31 March 2012, if the Hong Kong stock market had increased or decreased by 10% with all other variables held constant and all the equity instruments move according to the historical relationship with the Hong Kong stock market, income for the year would have been 5.6 million higher or lower (2011: 6.4 million). 5.6 Currency risk The Investment Guidelines permit only investments in HK dollars. There is therefore no currency risk taken by the Fund. 5.7 Liquidity risk Liquidity risk is the potential that the Fund will encounter difficulty in raising funds to meet its cash commitments. Liquidity risk may result from the need to sell financial assets quickly at their fair values; counterparties failure to settle a contractual obligation; or inability to generate cash flows as anticipated. As at 31 March 2012, the Fund held cash and deposits of 1,164,211,804 (2011: 1,058,635,782) that were expected to orderly mature. In addition, the Fund held marketable securities of 363,361,886 (2011: 346,267,038), which could be readily realized to provide a further source of cash if the need arose. Therefore, liquidity risk is considered to be minimal. As at 31 March 2012, the creditors and accrued charges of the Fund amounted to 58,674 (2011: 54,285) with the maturity less than 3 months. 5.8 Fair values The fair values of financial assets and financial liabilities are determined as follows: The fair values of listed investments and unlisted investments with standard terms and conditions are determined by reference to bid prices quoted in active markets. The fair values of other financial assets and financial liabilities stated at amortised costs approximate the corresponding carrying amounts. 5.9 Fair value measurements recognised in the statement of financial position The Fund has adopted the amendment to HKFRS 7. This requires the Fund to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. a) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active market for identical assets or liabilities; b) Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and c) Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). Annual Report 2011/12 109

112 MPF SCHEMES COMPENSATION FUND Notes to the Financial Statements (cont d) for the year ended 31 March FINANCIAL INSTRUMENTS (cont d) 5.9 Fair value measurements recognised in the statement of financial position (cont d) Level 1 Financial assets measured at fair value: Equity securities 57,075,200 65,170,000 Debt securities 306,286, ,097, ,361, ,267,038 During the year ended 31 March 2012 and 2011, no financial assets were classified under Levels 2 and 3 and there was no transfer between levels. 6. NET INVESTMENT (LOSS) / GAIN Interest income on investments designated at fair value 3,906,434 5,279,164 Dividends from investments designated at fair value 1,728,720 1,591,520 Net realised losses on investments designated at fair value (4,302,759) (1,364,400) Net change in unrealised (loss) / gain on investments designated at fair value (6,664,527) 4,140,947 (5,332,132) 9,647, TAXATION No provision for Hong Kong Profits Tax has been made in the financial statements as the Fund is exempt from Hong Kong Profits Tax under section 88 of the Inland Revenue Ordinance. 8. INVESTMENTS DESIGNATED AT FAIR VALUE Equity securities Listed 57,075,200 65,170,000 Debt securities Listed 124,362, ,097,848 Unlisted 181,924,170 8,999, ,286, ,097,038 Total Listed 181,437, ,267,848 Unlisted 181,924,170 8,999, ,361, ,267, SEED MONEY On 12 March 1999, an amount of 600 million was injected from the Government of the Hong Kong Special Administrative Region as the seed money of the Fund. 110 Mandatory Provident Fund Schemes Authority

113 Statistics Part A MPF Scheme Members 1. Employed Population by Type of Retirement Schemes (as at ) 71% Joined MPF schemes 14% Joined other retirement schemes 11% Not required to join any local retirement scheme 4% Should join but have not yet joined any MPF scheme Number of Participants ( 000) Joined MPF schemes Joined other retirement schemes 522 Not required to join any local retirement scheme 394 Should join but have not yet joined any MPF scheme The MPF Universe (as at ) Employers under the MPF System Number of main businesses Add Number of owners corporations with employee(s) that are not covered in the Central Register of Establishments ( CRE ) 2 4 Number of employers engaged in other industries that are not covered in the CRE 6 Less Number of businesses with no employees 3 93 Number of employers under the MPF System* 259 ( 000) * Figures may not sum up to the total due to rounding. The figures were estimated on the basis of: 1 Statistics obtained from the Central Register of Establishments and the Survey of Employment and Vacancies by the Census and Statistics Department. 2 Figures provided by the Land Registry. 3 Statistics obtained from the Survey of Employment and Vacancies by the Census and Statistics Department. Annual Report 2011/12 111

114 Statistics Part A MPF Scheme Members (cont d) Relevant Employees under the MPF System Employees who are 18 years old or over but under 65 years of age are required to join an MPF scheme, with the exception of certain exempt persons. The table below shows the process of calculating the number of relevant employees under the MPF System. ( 000) Total number of employees in Hong Kong (excluding those aged below 18 or above 65) Less Number of civil servants who are covered by the Civil Service Pension System Number of teachers who are covered by the Grant Schools or Subsidized Schools Provident Fund 3 38 Number of employees who choose to remain as members of MPF exempted ORSO registered schemes Number of domestic employees Number of expatriates who do not have the right of abode in Hong Kong and are covered by overseas 50 retirement schemes or who work in Hong Kong for not more than 13 months 5 Number of employees who are employed for less than 60 days, excluding employees participating in construction and catering industries 6 17 Number of relevant employees under the MPF System* * Figures may not sum up to the total due to rounding. The figures were estimated on the basis of: 1 Statistics obtained from the General Household Survey by the Census and Statistics Department. 2 Figures published by the Civil Service Bureau. 3 Figures published by the Education Bureau. 4 Figures reported by employers of MPF exempted ORSO registered schemes. 5 Figures published by the Immigration Department. 6 Figures obtained from a special topic enquiry conducted via the General Household Survey in Q by the Census and Statistics Department. Self-employed Persons ( SEPs ) under the MPF System Self-employed persons who are 18 years old or over but under 65 years of age are required to join an MPF scheme, with the exception of certain exempt persons. The table below shows the process of calculating the number of self-employed persons under the MPF System. ( 000) Total number of SEPs in Hong Kong (excluding those aged below 18 or above 65) Less Number of SEPs who are licensed hawkers 2 (excluding licensed hawkers aged below 18 or above 65) 4 Number of SEPs under the MPF System* 330 * Figures may not sum up to the total due to rounding. The figures were estimated on the basis of: 1 Statistics obtained from the General Household Survey by the Census and Statistics Department. SEPs under the MPF System include both self-employed persons and employers as defined in the Quarterly Report on General Household Survey. 2 Statistics obtained from the General Household Survey by the Census and Statistics Department. 3. Enrolment in MPF schemes* Enrolment Rate 100% 80% 60% 40% 20% 0% Employer Relevant Employee SEP 3/2000 3/2001 3/2002 3/2003 3/2004 3/2005 3/2006 3/2007 3/2008 3/2009 3/2010 3/2011 3/2012 * Estimated Figures 112 Mandatory Provident Fund Schemes Authority

115 4. Number of Participating Members and Enrolment Rates* As at Employer Relevant Employee SEP Number of Participating Employers 1 ( 000) Enrolment Rate (%) Participating Members 1 ( 000) Enrolment Rate (%) Participating Members 1 ( 000) Enrolment Rate (%) Preserved Accounts ( 000) * Estimated Figures 1 As the MPF System is an employment-based system, some employers and members may be participating in more than one scheme. Adjustments have been made for employers and members who are participating in more than one scheme in the same capacity. 5A. Contributions Received and Benefits Paid MPF Schemes ( ) ( million) Contributions Received Benefits Paid Special Special Quarter Mandatory Voluntary Voluntary 1 Total 2 Mandatory Voluntary Voluntary 1 Total 2 Q ,458 1, ,232 1, ,444 Q ,592 1, ,382 1, ,317 Q ,841 1, ,798 1, ,998 Q ,367 1, ,544 1, ,594 Total 2 35,257 6,193 1,505 42,955 5,932 2,245 1,176 9,353 5B. Percentage Share of Contributions Received by Contribution Type ( ) 82% Mandatory Contribution 14% Voluntary Contribution 4% Special Voluntary Contribution 1 5C. Percentage Share of Benefits Paid by Contribution Type ( ) 63% Mandatory Contribution 24% Voluntary Contribution 13% Special Voluntary Contribution 1 1 Special Voluntary Contributions refers to voluntary contributions paid directly by a relevant employee to the trustee. Unlike general voluntary contributions, these contributions are non-employment related, i.e. contributions do not go through his/her employer, and withdrawal of accrued benefits is neither tied to employment nor subject to preservation requirements. 2 Figures may not sum up to the total due to rounding. Annual Report 2011/12 113

116 Statistics Part B MPF Products 1A. Net Asset Values of Approved Constituent Funds by Scheme Type ( million) Type of MPF Schemes As at Master Trust Schemes Industry Schemes Employer Sponsored Schemes Total ,449 7,032 2, , ,382 7,230 2, , ,500 6,778 2, , ,234 7,081 2, , ,168 7,613 2, ,744 1 Figures may not sum up to the total due to rounding. 1B. Percentage Share of Net Asset Values and Number of Approved Constituent Funds by Scheme Type (as at ) Number of Schemes 97% Master Trust Schemes 37 2% Industry Schemes 2 1% Employer Sponsored Schemes 1 2A. Net Asset Values 1 of Approved Constituent Funds by Fund Type ( million) Type of Approved Constituent Funds As at Mixed Assets Fund Equity Fund MPF Conservative Fund Guaranteed Fund Bond Fund Money Market Fund and Others 2 Total , ,666 41,286 33,777 6,047 1, , , ,156 41,157 34,032 6,325 1, , , ,310 42,426 34,223 7,111 1, , , ,769 43,902 35,217 7,612 1, , , ,429 45,733 36,771 8,382 1, ,744 1 As reported by trustees, the figures include assets transferred from ORSO schemes. 2 Includes Money Market Funds that are not MPF Conservative Funds and Uncategorized Funds as per the Performance Presentation Standards for MPF Investment Funds. 3 Figures may not sum up to the total due to rounding. 114 Mandatory Provident Fund Schemes Authority

117 2B. Percentage Share of Net Asset Values and Number of Approved Constituent Funds by Fund Type (as at ) Number of Funds 42% Mixed Assets Fund % Equity Fund % MPF Conservative Fund 40 9% Guaranteed Fund 28 2% Bond Fund 38 <0.5% Money Market Fund and Others Includes Money Market Funds that are not MPF Conservative Funds and Uncategorized Funds as per the Performance Presentation Standards for MPF Investment Funds. 3. Asset Allocation of Approved Constituent Funds by Fund Type and Asset Class (as at ) Mixed Assets Fund 6% 23% 71% 3% 97% Equity Fund MPF Conservative Fund 86% 14% 16% 74% 10% Guaranteed Fund 8% 92% Bond Fund Money Market Fund and Others 1 Overall 16% 20% 61% 39% 64% 0% 20% 40% 60% 80% 100% Deposits & Cash Debt Securities 2 Equities 1 Includes Money Market Funds that are not MPF Conservative Funds and Uncategorized Funds as per the Performance Presentation Standards for MPF Investment Funds. 2 Includes convertible debt securities. Annual Report 2011/12 115

118 Statistics Part B MPF Products (cont d) 4. Asset Allocation of Approved Constituent Funds by Fund Type and Geographical Region 1 (as at ) Mixed Assets Fund Equity Fund 33% 12% 11% 24% 20% 70% 1% 15% 5% 9% MPF Conservative Fund 87% 100% 1%1% 10% 1% Guaranteed Fund Bond Fund 51% 9% 7% 16% 17% Money Market Fund and Others 2 Overall 60% 99% 1% 6% 10% 13% 11% 0% 20% 40% 60% 80% 100% Hong Kong Japan Asia 3 North America Europe 1 For deposits, cash and debt securities, Geographical Region reflects the currency of denomination of the respective accounts and debt securities. For equities, Geographical Region reflects the country of primary listing of the equities. 2 Includes Money Market Funds that are not MPF Conservative Funds and Uncategorized Funds as per the Performance Presentation Standards for MPF Investment Funds. 3 Excludes Japan and Hong Kong but includes Australia, New Zealand and India. 5. Asset Allocation of Approved Constituent Funds by Geographical Region 1 and Asset Class (as at ) Deposits & Cash Debt Securities 2 Equities Overall Hong Kong 15% 10% 35% 60% Japan 2% 4% 6% Asia 3 1% 9% 10% North America 1% 4% 8% 13% Europe 3% 8% 11% Overall 16% 20% 64% 100% 1 For deposits, cash and debt securities, Geographical Region reflects the currency of denomination of the respective accounts and debt securities. For equities, Geographical Region reflects the country of primary listing of the equities. 2 Includes convertible debt securities. 3 Excludes Japan and Hong Kong but includes Australia, New Zealand and India. Less than 0.5%. 116 Mandatory Provident Fund Schemes Authority

119 6. Annualized Internal Rate of Return 1 of the MPF System by Period ( million) Period Net Asset Values Period- Beginning (a) Period- End (b) Total Net Contributions during the 2 Period (c) Net Investment Return 3 during the Period (b) (a) (c) Annualized Internal Rate of Return ,125 43,878-1, % ,125 59,305 23,016-5, % ,305 97,041 22,133 15, % , ,316 22,205 5, % , ,613 23,435 16, % , ,199 24,684 21, % , ,247 26,844 10, % , ,741 38, , % , ,310 29, , % , ,280 31, , % , ,744 34,687-22, % Since inception of the MPF System , , , % 1 The return of the MPF System was calculated by way of the internal rate of return ( IRR ), a method commonly known as dollarweighted return. The IRR method, which takes into account the amount and timing of contributions into and benefits withdrawn from the MPF System, was used as it better reflects the features of cash inflow and outflow of the MPF System. The annualized IRR was calculated by raising the monthly IRR to the power of Total Net Contributions during the Period refers to the net contribution inflow after deducting the amount of benefits paid during the period. 3 Return figures are net of fees and charges. Figures may not sum up to the total due to rounding. 4 Includes the Government s injection of special contributions into accounts of eligible scheme members. 7. Annualized Return 1 of Approved Constituent Funds by Fund Type and Period (as at ) Type of Approved Constituent Funds Past 1 year Past 3 years Past 5 years Since Mixed Assets Fund -4.6% 12.7% 0.8% 4.0% Equity Fund -11.0% 16.6% 0.8% 4.1% MPF Conservative Fund 0.1% 0.0% 0.7% 1.1% Guaranteed Fund 0.4% 2.8% 1.2% 1.5% Bond Fund 3.5% 4.9% 4.3% 3.8% Money Market Fund and Others 2-0.2% -0.2% 0.1% 0.7% Change of the Consumer Price Index ( CPI ) for the same periods Annualized Composite CPI % Change 3 4.9% 3.8% 3.3% 1.2% 1 Return figures are net of fees and charges. Returns of different types of constituent funds were calculated by way of time-weighted method. This time-weighted method takes into account the unit price and asset size of each constituent fund at different points in time. Unlike the IRR method, it does not capture the impact of the contributions into and benefits withdrawn from the constituent funds. The annualized return was calculated by raising the average monthly return to the power of Includes Money Market Funds that are not MPF Conservative Funds and Uncategorized Funds as per the Performance Presentation Standards for MPF Investment Funds. 3 Calculated on the basis of the 2009/10-based Composite CPI compiled by the Census and Statistics Department. Annual Report 2011/12 117

120 Statistics Part B MPF Products (cont d) 8. Average, Highest and Lowest Fund Expense Ratios ( FER ) of All Constituent Funds 1 Fund Type Number of Funds Average FER Highest FER Lowest FER Mixed Assets Fund % 4.62% 0.18% Bond Fund % 2.85% 0.25% Equity Fund % 2.89% 0.21% Guaranteed Fund % 3.79% 1.33% Money Market Fund MPF Conservative Fund % 0.77% 0.09% Money Market Fund non MPF Conservative Fund % 1.09% 1.09% Others % 1.59% 1.35% Overall % 4.62% 0.09% 1 The FER figures in the table are related to individual constituent funds of MPF registered schemes with financial year end dates falling within the period from 1 July 2010 to 30 June A constituent fund may comprise different fund classes. For the purpose of calculating the FER, each fund class of a constituent fund is in effect treated as a separate investment fund. As a result, the total number of funds shown here may be larger than the actual number of constituent funds. 9. Published Prescribed Savings Rates 1 ( ) 5.0% 4.75% 4.0% 3.75% 3.0% 2.75% % 2.5% 2.0% % 1.75% % % 1.0% 0.0% % % % 0.01% 0.125% % 0.25% 0.01% 0.007% 0.007% 0.007% 12/ / / / / / / / / / / / The prescribed savings rates are prescribed by MPFA pursuant to section 37(8) of the Mandatory Provident Fund Schemes (General) Regulation for the operation of MPF Conservative Funds. 118 Mandatory Provident Fund Schemes Authority

121 Statistics Part C Intermediaries 1. Number of Registered MPF Intermediaries (as at ) Number of registered MPF intermediaries Corporate intermediaries 486 Individual intermediaries Permitted to advise on insurance policies Permitted to advise on securities Permitted to advise on both securities and insurance policies Permitted to sell MPF schemes without rendering specific investment advice Number of MPF Corporate Intermediaries by Industry (two year comparison) 500 Total (85%) Total (86%) (11%) 50 (10%) 0 22 (4%) 20 (4%) As at As at Banking Securities Insurance 3. Number of MPF Individual Intermediaries by Industry (two year comparison) Total (70%) Total (75%) (28%) (24%) (2%) 413 (1%) As at As at Securities Banking Insurance Annual Report 2011/12 119

122 Statistics Part D ORSO Schemes ORSO Schemes 1. Number of ORSO Schemes by Benefit Type (two year comparison) Total (12%) (88%) Total (11%) (89%) Defined Contribution Defined Benefit 2. Number of ORSO Schemes by Benefit Type (as at ) Benefit Type Defined Contribution Defined Benefit Total Scheme Type Number of Schemes % Number of Schemes % Number of Schemes % Registered Scheme - MPF exempted Non-MPF exempted Exempted Scheme - MPF exempted Non-MPF exempted Total Mandatory Provident Fund Schemes Authority

123 MPF Exempted ORSO Schemes 3. Number of MPF Exempted ORSO Schemes (as at ) ORSO Registered Schemes ORSO Exempted Schemes Total (a) (b) (c) Number of MPF Exempted ORSO Schemes approved as at 31 March Number of new applications approved during the period from 1 April 2011 to 31 March Number of withdrawals of MPF Exemption Certificates during the period from 1 April 2011 to 31 March 2012 (d) Number of MPF Exempted ORSO Schemes as at 31 March 2012 [i.e. (d) = (a) + (b) (c)] This refers to the application for MPF exemption in respect of newly established ORSO registered schemes whereby all or a substantial portion of the members and assets of the schemes were transferred from one or more MPF exempted ORSO schemes as a result of scheme restructuring or bona fide business transactions. ORSO Registered Schemes 4. Number of Members Covered by ORSO Registered Schemes by Benefit Type (two year comparison) ( 000) 500 Total Total (33%) (34%) (67%) (66%) * 2012* Defined Contribution * Figures may not sum up to the total due to rounding. Defined Benefit 5. Number of Members Covered by ORSO Registered Schemes by Benefit Type (as at ) Benefit Type Defined Contribution Defined Benefit Total* Scheme Type ( 000) % ( 000) % ( 000) % MPF exempted Non-MPF exempted Total* * Figures may not sum up to the total due to rounding. Annual Report 2011/12 121

124 Statistics Part D ORSO Schemes (cont d) Contribution Amount 6. Annual Contribution Amount to ORSO Registered Schemes by Employers and Employees ( million) MPF Exempted Non-MPF Exempted Total Employer s Contributions - Ordinary 12,069 (76%) 533 (71%) 12,602 (76%) - Initial/Special 524 (3%) 13 (2%) 537 (3%) Sub-total 12,593 (79%) 546 (73%) 13,139 (79%) Employee s Contributions 3,334 (21%) 204 (27%) 3,538 (21%) Total Contributions 15,927 (100%) 750 (100%) 16,677 (100%) Source: The latest annual returns in respect of ORSO registered schemes 7. Annual Contribution Amount to ORSO Registered Schemes by Benefit Type ( million) Non-MPF Exempted (750 million) 0.3% Defined Benefit % Defined Contribution 703 MPF Exempted (15,927 million) 33.4% Defined Benefit 5, % Defined Contribution 10,359 Contribution Amount : 16,677 million Source: The latest annual returns in respect of ORSO registered schemes 8. Asset Size of ORSO Registered Schemes by Benefit Type (as at ) ( million) Non-MPF Exempted (11,608 million) 1% Defined Benefit 2, % Defined Contribution 8,959 MPF Exempted (252,950 million) 39.7% Defined Benefit 105, % Defined Contribution 147,773 Asset Size : 264,558 million Source: The latest annual returns in respect of ORSO registered schemes 122 Mandatory Provident Fund Schemes Authority

125 Statistics Part E Enquiries and Complaints 1. Enquiries Received by Enquirer Type ( ) Enquirer Type Number of Enquiries % Employee % Employer % Self-employed Person % Service Provider % Others / Unknown % Total % 2. Nature of Enquiries ( ) 20% Transfer/Withdrawal of Benefits 20% Contribution Arrangement 15% Enrolment Arrangement 13% Services Provided by MPFA 7% Surcharge Notices 5% Default Contributions 4% Trustee and Investment 2% ORSO 2% SEP: Enrolment and Contributions 1% Enforcement 11% Others Total number of enquiry nature: # # Since an enquiry may cover more than one enquiry nature, total number of enquiry nature may exceed the total number of enquiries. Annual Report 2011/12 123

126 Statistics Part E Enquiries and Complaints (cont d) 3. Complaints Received by Industry of Complainee ( ) 24% Catering 21% Construction 14% Wholesale/Retail/Import & Export Trades 8% Financing/Insurance/Real Estate/Business Services 7% Community/Social/Personal Services 6% Transport 6% MPF Trustees, Service Providers & Intermediaries/ORSO Administrators 4% Security Guard 3% Manufacturing 2% Cleaning 2% Hairdressing and Beauty 3% Others Industry of Complainee Number of Complaints % Catering % Construction % Wholesale/Retail/Import & Export Trades % Financing/Insurance/Real Estate/Business Services 363 8% Community/Social/Personal Services 318 7% Transport 283 6% MPF Trustees, Service Providers & Intermediaries/ORSO Administrators 282 6% Security Guard 161 4% Manufacturing 148 3% Cleaning 108 2% Hairdressing and Beauty 99 2% Others 120 3% Total number of complaints received % 124 Mandatory Provident Fund Schemes Authority

127 4. Complaints Received by Complainee Type ( ) Complainee Number of Complaints Employers (MPF and ORSO) MPF Trustees & Service Providers 258 MPF Intermediaries 14 ORSO Administrators 10 Others 51 Total number of complaints received Nature of Complaints ( ) Type of Allegations Number of Allegations Employers (MPF and ORSO) Default Contribution Non-enrolment Others 975 MPF Trustees & Service Providers 347 Scheme Administration 312 Others 35 MPF Intermediaries 16 Servicing and Conduct Issues 10 Others 6 ORSO Administrators 21 Scheme Administration 17 Others 4 Others 43 Total number of allegations # # Since a complaint may cover more than one allegation, total number of allegations may exceed the total number of complaints. Annual Report 2011/12 125

128 Statistics Part F Enforcement 1. Number of Payment Notices Issued in Respect of Default Contribution ( ) Month Number of Payment Notices Issued April May June July August September October November December January February March Total Number of Cases Investigated (Including Complaint Cases and Cases Reported by Trustees) by Type of Alleged Offences ( ) Alleged Offences Number Default contribution Non-enrolment Forced change to SEP 53 Others # 855 Total* # Others include failure to notify trustees of termination of employment, evading MPF contributions by setting aside and labelling part of the employee s salary as housing allowance, failure to issue monthly pay record, etc. * As one case may be related to several types of alleged offences, figures may not sum up to the total. 126 Mandatory Provident Fund Schemes Authority

129 3. Number of Summons Applications Referred to the Police by Nature of Offences Committed and Results ( ) Nature of Offences Guilty Prosecution Status as at Acquitted Not yet available Withdrawn* Total Number of Summonses Applied Contributions in arrears Non-enrolment of employee False statement Failing to comply with a lawful requirement made by the Authority in the course of exercising or performing its functions Failure to comply with court order Total * Summonses could not be effectively served by Police or Bailiff, as the defendants had moved away, closed, become untraceable, wound up or become bankrupt. 4. Number of Applications Lodged with Small Claims Tribunal, District Court, High Court, Bailiff and Liquidator ( ) Number of Cases Related Number of Employees Lodged with the Small Claims Tribunal Lodged with the District Court Lodged with the High Court 1 63 Lodged with Bailiff Lodged with Liquidators Number of Garnishee Orders Applied ( ): Financial Penalty Notices Issued to Employers ( ) Breach Number of Financial Penalty Notices Issued Amount of Financial Penalty Breach of section 7A(8) of the MPFSO (Failure to pay MPF contributions in respect of an employee to the approved trustee within the prescribed period) ,000 Annual Report 2011/12 127

130 Appendix 1 Membership Lists of Boards and Committees (as at 31 March 2012) Management Board Chairman The Hon Anna Wu Hung-yuk, GBS, JP Deputy Chairman Mrs Diana Chan Tong Chee-ching, JP Members The Hon Li Fung-ying, SBS, JP The Hon Andrew Leung Kwan-yuen, GBS, JP The Hon Wong Kwok-kin, BBS Mr Rimsky Yuen Kwok-keung, SC, JP The Hon Ip Kwok-him, GBS, JP Ms Paddy Lui Wai-yu, BBS, JP Mr John Poon Cho-ming Mr Philip Tsai Wing-chung Prof the Hon K C Chan, SBS, JP Alternate: Permanent Secretary for Financial Services and the Treasury (Financial Services) The Hon Matthew Cheung Kin-chung, GBS, JP Alternate: Permanent Secretary for Labour and Welfare Ms Hendena Yu, JP Mr Darren Mark McShane Mr Thomas Yiu Kei-chung Ms Cynthia Hui Wai-yee MPF Schemes Advisory CommitteE Chairman Mr David Sun Tak-kei, BBS, JP Deputy Chairman Mrs Diana Chan Tong Chee-ching, JP Members Mr Stanley Lau Chin-ho, BBS, MH, JP Ms Ng Wai-yee, MH Mr William Chan Che-kwong The Hon Ip Wai-ming, MH Mrs Agnes Koon Woo Kam-oi Mr Larry Kwok Lam-kwong, BBS, JP The Hon Fred Li Wah-ming, SBS, JP Mr Paul Pong Po-lam Mrs Bethy Tam Ho Kum-man MPF Industry Schemes Committee Chairman The Hon Wong Ting-kwong, BBS, JP Members Mr Hiew Chin, BBS, MH Mr Thomas Ho On-sing, JP Mr Tsang Peng-sun Mr Yuen Fuk-wo Mr Ng Kwok-kwan Mr Conrad Wong Tin-cheung, JP Mr Chan Sam-choi Mr Chan Wing-on Mr Adrian Li Man-kiu, JP Mr Ivan Liu Sin-keung Mr Thomas Yiu Kei-chung 128 Mandatory Provident Fund Schemes Authority

131 Supporting Committees of the Management Board Administration Committee The Committee advises the Management Board on the development of human resources policies and procedures as well as policies relating to general administration. Chairman The Hon Ip Kwok-him, GBS, JP Members The Hon Anna Wu Hung-yuk, GBS, JP The Hon Li Fung-ying, SBS, JP Mrs Diana Chan Tong Chee-ching, JP Mr Thomas Yiu Kei-chung Audit Committee The Committee advises the Management Board on the appointment of external auditor, oversees the implementation of the auditor s recommendations, reviews annual financial statements before submission to the Management Board and, as and when necessary, initiates special financial audits. It also reviews management s reports on internal control systems and internal audit programmes, and considers major findings of internal investigations and management s responses. Chairman Ms Paddy Lui Wai-yu, BBS, JP Members The Hon Wong Kwok-kin, BBS The Hon Ip Kwok-him, GBS, JP Mr Philip Tsai Wing-chung Finance Committee The Committee advises the Management Board on the development of financial strategies and policies, examines and reviews the annual budget of MPFA, and oversees the financial position and investment of the funds of MPFA and the MPF Schemes Compensation Fund. Chairman Mr Philip Tsai Wing-chung Members The Hon Anna Wu Hung-yuk, GBS, JP Mr John Poon Cho-ming Mrs Diana Chan Tong Chee-ching, JP Mr Thomas Yiu Kei-chung Tender Board The Tender Board considers the assessment of tender submissions conducted by the Assessment Panel comprising MPFA staff, recommends the award of contract to a selected tender or the rejection of the tender submissions, and reports to and advises the Managing Director on matters regarding tender submissions. Chairman The Hon Andrew Leung Kwan-yuen, GBS, JP Members Mr John Poon Cho-ming Mr Thomas Yiu Kei-chung One other executive director or head of MPFA responsible for the subject under consideration Annual Report 2011/12 129

132 Appendix 1 Membership Lists of Boards and Committees (cont d) (as at 31 March 2012) Guidelines Committee The Committee scrutinizes draft MPF Guidelines developed to give details on issues that are not spelt out in the MPF legislation for the guidance of MPF service providers, and reviews and updates existing guidelines. Working Group on Review of Withdrawal of MPF Benefits The Working Group considers the modes of payment of MPF benefits on retirement and the grounds for early withdrawal of MPF benefits. Chairman Mr Rimsky Yuen Kwok-keung, SC, JP Chairman Mr Rimsky Yuen Kwok-keung, SC, JP Members The Hon Anna Wu Hung-yuk, GBS, JP Mr Alex Chu Mr Lieven Debruyne (from 1 Feb 2012) Ms Cynthia Chung Mr Bonn Liu Ms Lau Ka-shi Mr David Adams Ms Kerry Ching (until 31 Jan 2012) Mr Darren Mark McShane Working Group on Regulation of Sales and Marketing of MPF Products The Working Group considers issues related to the development of a statutory framework for the regulation of marketing and selling of MPF products. Chairman Mr Rimsky Yuen Kwok-keung, SC, JP Members The Hon Anna Wu Hung-yuk, GBS, JP The Hon Li Fung-ying, SBS, JP Mr David Sun Tak-kei, BBS, JP The Hon Wong Ting-kwong, BBS, JP Working Group on MPF Reform Issues The Working Group considers MPF reform issues focusing on (a) evaluating and proposing measures to further reduce fees and charges of MPF schemes, and (b) studying measures to increase choices of MPF schemes for employees. Chairman The Hon Anna Wu Hung-yuk, GBS, JP Members The Hon Ip Kwok-him, GBS, JP Mr John Poon Cho-ming Mr David Sun Tak-kei, BBS, JP Members Mr Leo Kung Lin-cheng, BBS, JP Mrs Angelina Lee Wong Pui-ling, SBS, JP 130 Mandatory Provident Fund Schemes Authority

133 Project Steering Committee on Consultancy Study on MPF Trustees Administration Costs The Steering Committee steers the direction and monitors the progress of the consultancy study on MPF trustees administration costs. Chairman Mr John Poon Cho-ming Members Ms Paddy Lui Wai-yu, BBS, JP Mr Philip Tsai Wing-chung Mandatory Provident Fund Schemes Appeal Board Occupational Retirement Schemes Appeal Board Chairman Mr Paul Tan Chuen-yan Deputy Chairman Mr Paul Shieh Wing-tai, SC Panel Members Mr Adrian Wong Koon-man, MH, JP Dr Stella Cho Lung Pui-lan Mr Philip Tsai Wing-chung Ms Cynthia Chung Wing-suet (from 7 Jun 2011) Ms Cecilia Lee Sau-wai (from 7 Jun 2011) Chairman Mr Paul Tan Chuen-yan Deputy Chairman Mr Paul Shieh Wing-tai, SC Panel Members Dr Stella Cho Lung Pui-lan Ms Benita Yu Ka-po Mr Kenny Chan Ngai-sang (from 25 Oct 2011) Ms Giovanna Kwong Fung-ping Ms Agnes Chan Sui-kuen (from 25 Oct 2011) Ms Chan Ching-chu (until 24 Oct 2011) Mr Carlson Tong, JP (until 24 Oct 2011) Annual Report 2011/12 131

134 Appendix 2 List of Approved MPF Trustees and Their Background (as at 31 March 2012) Ageas Trustees (HK) Limited Ageas Trustees (HK) Limited is a wholly-owned subsidiary of Ageas Asia Holdings Limited which, together with its other subsidiaries, is principally engaged in individual life insurance, group insurance and general insurance business. American International Assurance Company (Trustee) Limited American International Assurance Company (Trustee) Limited is a member of the AIA Group Limited (the AIA Group ). The AIA Group has wholly-owned main operating subsidiaries or branches in 14 markets in Asia Pacific and a 26% joint venture shareholding in India. The AIA Group meets the savings and protection needs of individuals by offering a range of products and services including retirement planning, life insurance and accident and health insurance. The Group also provides employee benefits, credit life and pension services to corporate clients. AXA China Region Trustees Limited AXA China Region Trustees Limited is a member of the global AXA Group. AXA has a history dating back to the early 19th century and commenced business in Hong Kong in 1986, offering a wide range of insurance, investment and retirement solutions. AXA Financial Services Trustees Limited AXA Financial Services Trustees Limited is a member of the global AXA Group. Bank Consortium Trust Company Limited Bank Consortium Trust Company Limited, a member of the BCT group of companies, is a trust company set up in 1999 by a consortium of local financial institutions. BCT provides services to retirement plans and investment funds as trustee, administrator and/or custodian and the pension products of which it is trustee include MPF master trust scheme, industry scheme and pooled ORSO plan sponsored by BCT Financial Limited (also a member of the BCT group of companies). The company also provides trustee, administration and/or custodian services for MPF/individual ORSO schemes and international pension plans as well as global investment funds sponsored by third parties. Bank of Communications Trustee Limited Bank of Communications Trustee Limited is a wholly owned subsidiary of Bank of Communications Co., Ltd, providing MPF and ORSO administration, trustee, custodian, and estate administration services and other financial services. It aims at providing products and services to meet the financial and retirement needs of its clients. Bank of East Asia (Trustees) Limited Bank of East Asia (Trustees) Limited is a wholly-owned subsidiary of The Bank of East Asia ( BEA ). BEA delivers comprehensive commercial and retail banking, financial, and insurance services through its Corporate Banking, Personal Banking, Wealth Management, Insurance & Retirement Benefits, Treasury Markets, China, and International divisions. Products and services include syndication loans, trade finance, deposit-taking, foreign currency savings, remittances, mortgage loans, consumer loans, credit cards, Cyberbanking, retail investment and wealth management services, foreign exchange margin trading, Mandatory Provident Fund services, and general and life insurance. 132 Mandatory Provident Fund Schemes Authority

135 BOCI-Prudential Trustee Limited BOCI-Prudential Trustee Limited is a joint-venture company founded between the subsidiaries of Bank of China Limited and the Prudential plc. The business activities of Bank of China Limited are principally corporate banking, retail banking, investment banking, insurance and other financial services. The Prudential plc provides a broad range of financial and insurance services as well as engages in fund management business. China Life Trustees Limited China Life Trustees Limited is a subsidiary of China Life Insurance (Overseas) Company Limited which is a member of China Life Insurance (Group) Company. The business activities of China Life Insurance (Overseas) Company Limited are principally life insurance, provident fund, retirement scheme and other related financial operations. Cititrust Limited Cititrust Limited is a member of Citigroup Inc. As a global financial services group, Citigroup Inc and its subsidiaries, provide a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management to consumers, corporations, governments and institutions. HSBC Institutional Trust Services (Asia) Limited HSBC Institutional Trust Services (Asia) Limited is a wholly owned subsidiary of the Hongkong and Shanghai Banking Corporation Limited, which is one of the commercial banks in Hong Kong. HSBC Institutional Trust Services (Asia) Limited is also trustee or administrator of ORSO Schemes. HSBC Provident Fund Trustee (Hong Kong) Limited HSBC Provident Fund Trustee (Hong Kong) Limited is a wholly owned subsidiary of the Hongkong and Shanghai Banking Corporation Limited, which is one of the commercial banks in Hong Kong. HSBC Provident Fund Trustee (Hong Kong) Limited is also trustee or administrator of ORSO Schemes. ING Pension Trust Limited ING Pension Trust Limited is a member of ING Group, which is a global integrated financial service provider active in the fields of banking, investments, life insurance and retirement services. ING Pension Trust Limited provides pension trust services to corporate customers. Manulife Provident Funds Trust Company Limited Manulife Provident Funds Trust Company Limited is a member of the Manulife Financial Group, which has principal operations in Asia, Canada and the United States. Manulife Financial provides a diverse range of financial protection and wealth management products and services to individuals, families, businesses and groups. Annual Report 2011/12 133

136 Appendix 2 List of Approved MPF Trustees and Their Background (cont d) (as at 31 March 2012) MassMutual Trustees Limited MassMutual Trustees Limited is a member of the MassMutual Financial Group. The Group serves 13 million clients worldwide with a broad-based portfolio of financial products and services, including life insurance, annuities, disability income insurance, long-term care insurance, mutual funds, retirement planning products, asset management, trust services and other financial products and services. MassMutual Financial Group is a marketing designation for the Massachusetts Mutual Life Insurance Company and its affiliates. Principal Trust Company (Asia) Limited Principal Trust Company (Asia) Limited, a member of the Principal Financial Group based in the United States, provides onestop shop services on retirement scheme management, including corporate trustee, fund and scheme administration services. In addition, the Company is engaged in the provision of unit trust administration and registration services to unit trust investors. RBC Dexia Trust Services Hong Kong Limited RBC Dexia Trust Services Hong Kong Limited provides trustee, fund administration, pension administration, custody and transfer agency services. It is a subsidiary of RBC Dexia Investor Services Limited, a UK company which is a joint venture between the Royal Bank of Canada and Dexia S.A.. Royal Bank of Canada Trust Company (Asia) Limited Royal Bank of Canada Trust Company (Asia) Limited is a wholly owned subsidiary of Royal Bank of Canada, a financial services organization providing personal and commercial banking, wealth management services, insurance, corporate and investment banking and transaction processing services on a global basis. Sun Life Trustee Company Limited Sun Life Trustee Company Limited is a member of the Sun Life Financial group of companies, which is an international financial services organization providing a diverse range of pension, wealth accumulation and protection products to individuals and corporate customers worldwide. 134 Mandatory Provident Fund Schemes Authority

137 Appendix 3 List of Registered MPF Schemes and Constituent Funds (as at 31 March 2012) Name of Trustee MPF Scheme Underlying Constituent Funds Ageas Trustees (HK) Limited Ageas Master Trust MPF Scheme 1 Ageas Global Balanced Fund 2 Ageas Hong Kong Fund 3 Ageas MPF Conservative Fund American International Assurance Company (Trustee) Limited American International Assurance Company (Trustee) Limited AIA MPF Basic Value Choice 1 American Fund 2 Asian Bond Fund 3 Asian Equity Fund 4 Balanced Portfolio 5 Capital Stable Portfolio 6 Eurasia Fund 7 European Equity Fund 8 Fidelity Capital Stable Fund 9 Fidelity Growth Fund 10 Fidelity Stable Growth Fund 11 Global Bond Fund 12 Greater China Equity Fund 13 Green Fund 14 Growth Portfolio 15 Guaranteed Portfolio 16 Hong Kong and China Fund 17 Hong Kong Equity Fund 18 Japan Equity Fund 19 Manager s Choice Fund 20 MPF Conservative Fund 21 North American Equity Fund 22 RCM Capital Stable Fund 23 RCM Growth Fund 24 RCM Stable Growth Fund 25 World Fund AIA MPF Prime Value Choice 1 American Fund 2 Asian Bond Fund 3 Asian Equity Fund 4 Balanced Portfolio 5 Capital Stable Portfolio 6 Eurasia Fund 7 European Equity Fund 8 Fidelity Capital Stable Fund 9 Fidelity Growth Fund 10 Fidelity Stable Growth Fund 11 Global Bond Fund 12 Greater China Equity Fund 13 Green Fund 14 Growth Portfolio 15 Guaranteed Portfolio 16 Hong Kong and China Fund 17 Hong Kong Equity Fund 18 Japan Equity Fund Annual Report 2011/12 135

138 Appendix 3 List of Registered MPF Schemes and Constituent Funds (cont d) (as at 31 March 2012) Name of Trustee MPF Scheme Underlying Constituent Funds 19 Manager s Choice Fund 20 MPF Conservative Fund 21 North American Equity Fund 22 RCM Capital Stable Fund 23 RCM Growth Fund 24 RCM Stable Growth Fund 25 World Fund American International Assurance Company (Trustee) Limited AXA China Region Trustees Limited AXA China Region Trustees Limited Bank Consortium Trust Company Limited AIA MPF Simple Value Choice 1 American Fund 2 Asian Bond Fund 3 Eurasia Fund 4 Global Bond Fund 5 Guaranteed Portfolio 6 Hong Kong and China Fund 7 MPF Conservative Fund 8 World Fund AXA MPF Simple Plan 1 AXA Fidelity Asia Pacific Equity Fund 2 AXA Fidelity Global Equity Fund 3 AXA RCM Hong Kong Fund 4 AXA Templeton Global Bond Fund 5 AXA Templeton Japan Equity Fund 6 AXA Balanced Fund 7 AXA Growth Fund 8 AXA MPF Conservative Fund 9 AXA Stable Fund AXA MPF Smart Plan 1 AXA Fidelity Asia Pacific Equity Fund 2 AXA Fidelity Global Equity Fund 3 AXA RCM Hong Kong Fund 4 AXA Templeton Global Bond Fund 5 AXA Templeton Japan Equity Fund 6 AXA Balanced Fund 7 AXA Cash Fund 8 AXA Growth Fund 9 AXA Guaranteed Fund 10 AXA MPF Conservative Fund 11 AXA Stable Fund AMTD MPF Scheme 1 AMTD Invesco Asia Fund 2 AMTD Invesco Europe Fund 3 AMTD Invesco Global Bond Fund 4 AMTD Invesco Hong Kong and China Fund 5 AMTD Invesco MPF Conservative Fund 6 AMTD Invesco Target 2018 Retirement Fund 7 AMTD Invesco Target 2028 Retirement Fund 8 AMTD Invesco Target 2038 Retirement Fund 9 AMTD Invesco Target 2048 Retirement Fund 10 AMTD RCM Balanced Fund 136 Mandatory Provident Fund Schemes Authority

139 Name of Trustee MPF Scheme Underlying Constituent Funds 11 AMTD RCM Capital Stable Fund 12 AMTD RCM Dynamic Allocation Fund 13 AMTD RCM Growth Fund 14 AMTD RCM Stable Growth Fund Bank Consortium Trust Company Limited Bank Consortium Trust Company Limited Bank Consortium Trust Company Limited Bank Consortium Industry Plan 1 BCT Absolute Return Fund 2 BCT Asian Equity Fund 3 BCT E30 Mixed Asset Fund 4 BCT E50 Mixed Asset Fund 5 BCT E70 Mixed Asset Fund 6 BCT Global Bond Fund 7 BCT Global Equity Fund 8 BCT Hong Kong Equity Fund 9 BCT MPF Conservative Fund Bank Consortium MPF Plan 1 Bank Consortium Absolute Return Fund 2 Bank Consortium Asian Equity Fund 3 Bank Consortium China and Hong Kong Equity Fund 4 Bank Consortium E30 Mixed Asset Fund 5 Bank Consortium E50 Mixed Asset Fund 6 Bank Consortium E70 Mixed Asset Fund 7 Bank Consortium E90 Mixed Asset Fund 8 Bank Consortium European Equity Fund 9 Bank Consortium Global Bond Fund 10 Bank Consortium Global Equity Fund 11 Bank Consortium Hang Seng Index Tracking Fund 12 Bank Consortium Hong Kong Dollar Bond Fund 13 Bank Consortium Hong Kong Equity Fund 14 Bank Consortium International Equity Fund 15 Bank Consortium MPF Conservative Fund 16 Bank Consortium SaveEasy 2020 Fund 17 Bank Consortium SaveEasy 2025 Fund 18 Bank Consortium SaveEasy 2030 Fund 19 Bank Consortium SaveEasy 2035 Fund 20 Bank Consortium SaveEasy 2040 Fund Invesco Strategic MPF Scheme 1 Asian Equity Fund 2 Balanced Fund 3 Capital Stable Fund 4 Global Bond Fund 5 Growth Fund 6 Guaranteed Fund 7 Hong Kong and China Equity Fund 8 MPF Conservative Fund Annual Report 2011/12 137

140 Appendix 3 List of Registered MPF Schemes and Constituent Funds (cont d) (as at 31 March 2012) Name of Trustee MPF Scheme Underlying Constituent Funds Bank Consortium Trust Company Limited RCM MPF Plan 1 RCM Absolute Return Fund 2 RCM Asian Fund 3 RCM Balanced Fund 4 RCM Capital Stable Fund 5 RCM Greater China Fund 6 RCM Growth Fund 7 RCM Hong Kong Fund 8 RCM MPF Conservative Fund 9 RCM Oriental Pacific Fund 10 RCM Stable Growth Fund Bank of Communications Trustee Limited BCOM Joyful Retirement MPF Scheme 1 BCOM Asian Dynamic Equity (CF) Fund 2 BCOM Balanced (CF) Fund 3 BCOM China Dynamic Equity (CF) Fund 4 BCOM Dynamic Growth (CF) Fund 5 BCOM Global Bond (CF) Fund 6 BCOM Greater China Equity (CF) Fund 7 BCOM Guaranteed (CF) Fund 8 BCOM Hong Kong Dynamic Equity (CF) Fund 9 BCOM HSI Tracking (CF) Fund 10 BCOM MPF Conservative Fund 11 BCOM Stable Growth (CF) Fund Bank of East Asia (Trustees) Limited Bank of East Asia (Trustees) Limited BEA (MPF) Industry Scheme 1 BEA (Industry Scheme) Asian Equity Fund 2 BEA (Industry Scheme) Balanced Fund 3 BEA (Industry Scheme) Greater China Equity Fund 4 BEA (Industry Scheme) Growth Fund 5 BEA (Industry Scheme) Hong Kong Equity Fund 6 BEA (Industry Scheme) MPF Conservative Fund 7 BEA (Industry Scheme) Stable Fund 8 BEA China Tracker Fund 9 BEA Hong Kong Tracker Fund BEA (MPF) Master Trust Scheme 1 BEA (MPF) Asian Equity Fund 2 BEA (MPF) Balanced Fund 3 BEA (MPF) Conservative Fund 4 BEA (MPF) European Equity Fund 5 BEA (MPF) Global Bond Fund 6 BEA (MPF) Global Equity Fund 7 BEA (MPF) Greater China Equity Fund 8 BEA (MPF) Growth Fund 9 BEA (MPF) Hong Kong Equity Fund 10 BEA (MPF) Japan Equity Fund 11 BEA (MPF) Long Term Guaranteed Fund 12 BEA (MPF) North American Equity Fund 13 BEA (MPF) Stable Fund 14 BEA China Tracker Fund 15 BEA Hong Kong Tracker Fund 138 Mandatory Provident Fund Schemes Authority

141 Name of Trustee MPF Scheme Underlying Constituent Funds BOCI-Prudential Trustee Limited BOCI-Prudential Trustee Limited China Life Trustees Limited BOC-Prudential Easy-Choice Mandatory Provident Fund Scheme My Choice Mandatory Provident Fund Scheme China Life MPF Master Trust Scheme 1 BOC-Prudential Asia Equity Fund 2 BOC-Prudential Balanced Fund 3 BOC-Prudential Bond Fund 4 BOC-Prudential China Equity Fund 5 BOC-Prudential Global Equity Fund 6 BOC-Prudential Growth Fund 7 BOC-Prudential Hong Kong Equity Fund 8 BOC-Prudential Japan Equity Fund 9 BOC-Prudential MPF Conservative Fund 10 BOC-Prudential Stable Fund 1 My Choice Asia Equity Fund 2 My Choice Balanced Fund 3 My Choice China Equity Fund 4 My Choice Global Bond Fund 5 My Choice Global Equity Fund 6 My Choice Growth Fund 7 My Choice HKD Bond Fund 8 My Choice Hong Kong Equity Fund 9 My Choice Hong Kong Tracking Fund 10 My Choice Japan Equity Fund 11 My Choice MPF Conservative Fund 12 My Choice Stable Fund 1 China Life Balanced Fund 2 China Life Growth Fund 3 China Life Guaranteed Return Fund 4 China Life Hong Kong Equity Fund 5 China Life MPF Conservative Fund 6 China Life Retire-Easy Balanced Fund 7 China Life Retire-Easy Capital Stable Fund 8 China Life Retire-Easy Global Equity Fund 9 China Life Retire-Easy Guarantee Fund HSBC Institutional Trust Services (Asia) Limited Fidelity Retirement Master Trust 1 Asia Pacific Equity Fund 2 Balanced Fund 3 Capital Stable Fund 4 Fidelity SaveEasy 2020 Fund 5 Fidelity SaveEasy 2025 Fund 6 Fidelity SaveEasy 2030 Fund 7 Fidelity SaveEasy 2035 Fund 8 Fidelity SaveEasy 2040 Fund 9 Global Equity Fund 10 Growth Fund 11 Hong Kong Bond Fund 12 Hong Kong Equity Fund 13 MPF Conservative Fund 14 Stable Growth Fund 15 World Bond Fund Annual Report 2011/12 139

142 Appendix 3 List of Registered MPF Schemes and Constituent Funds (cont d) (as at 31 March 2012) Name of Trustee MPF Scheme Underlying Constituent Funds HSBC Institutional Trust Services (Asia) Limited Haitong MPF Retirement Fund 1 Haitong Asia Pacific (excluding HK) Fund 2 Haitong Global Diversification Fund 3 Haitong Hong Kong SAR Fund 4 Haitong Korea Fund 5 Haitong MPF Conservative Fund HSBC Provident Fund Trustee (Hong Kong) Limited HSBC Provident Fund Trustee (Hong Kong) Limited HSBC Provident Fund Trustee (Hong Kong) Limited HSBC Provident Fund Trustee (Hong Kong) Limited HSBC Provident Fund Trustee (Hong Kong) Limited HSBC Provident Fund Trustee (Hong Kong) Limited Hang Seng Mandatory Provident Fund SimpleChoice Hang Seng Mandatory Provident Fund SuperTrust Hang Seng Mandatory Provident Fund SuperTrust Plus Hang Seng Mandatory Provident Fund ValueChoice HSBC Mandatory Provident Fund SimpleChoice HSBC Mandatory Provident Fund SuperTrust 1 Global Bond Fund 2 Global Equity Fund 3 MPF Conservative Fund 1 Balanced Fund 2 Growth Fund 3 Guaranteed Fund 4 Hang Seng Index Tracking Fund 5 MPF Conservative Fund 1 Asia Pacific Equity Fund 2 Balanced Fund 3 Chinese Equity Fund 4 European Equity Fund 5 Flexi-Managed Fund 6 Global Bond Fund 7 Growth Fund 8 Guaranteed Fund 9 Hang Seng Index Tracking Fund 10 Hong Kong and Chinese Equity Fund 11 MPF Conservative Fund 12 North American Equity Fund 13 Stable Fund 14 Stable Growth Fund 1 Global Bond Fund 2 Hang Seng H-Share Index Tracking Fund 3 Hang Seng Index Tracking Fund 4 MPF Conservative Fund 5 ValueChoice Asia Pacific Equity Fund 6 ValueChoice Balanced Fund 7 ValueChoice European Equity Fund 8 ValueChoice Stable Growth Fund 9 ValueChoice US Equity Fund 1 Global Bond Fund 2 Global Equity Fund 3 MPF Conservative Fund 1 Balanced Fund 2 Growth Fund 3 Guaranteed Fund 4 Hang Seng Index Tracking Fund 5 MPF Conservative Fund 140 Mandatory Provident Fund Schemes Authority

143 Name of Trustee MPF Scheme Underlying Constituent Funds HSBC Provident Fund Trustee (Hong Kong) Limited HSBC Provident Fund Trustee (Hong Kong) Limited HSBC Mandatory Provident Fund SuperTrust Plus HSBC Mandatory Provident Fund ValueChoice 1 Asia Pacific Equity Fund 2 Balanced Fund 3 Chinese Equity Fund 4 European Equity Fund 5 Flexi-Managed Fund 6 Global Bond Fund 7 Growth Fund 8 Guaranteed Fund 9 Hang Seng Index Tracking Fund 10 Hong Kong and Chinese Equity Fund 11 MPF Conservative Fund 12 North American Equity Fund 13 Stable Fund 14 Stable Growth Fund 1 Global Bond Fund 2 Hang Seng H-Share Index Tracking Fund 3 Hang Seng Index Tracking Fund 4 MPF Conservative Fund 5 ValueChoice Asia Pacific Equity Fund 6 ValueChoice Balanced Fund 7 ValueChoice European Equity Fund 8 ValueChoice Stable Growth Fund 9 ValueChoice US Equity Fund HSBC Provident Fund Trustee (Hong Kong) Limited Schroder MPF Master Trust 1 Schroder MPF Asian Portfolio 2 Schroder MPF Balanced Investment Portfolio 3 Schroder MPF Capital Guaranteed Portfolio 4 Schroder MPF Capital Stable Portfolio 5 Schroder MPF Conservative Portfolio 6 Schroder MPF Growth Portfolio 7 Schroder MPF HK Dollar Fixed Income Portfolio 8 Schroder MPF Hong Kong Portfolio 9 Schroder MPF International Portfolio 10 Schroder MPF Stable Growth Portfolio ING Pension Trust Limited ING MPF Master Trust Basic Scheme 1 ING MPF Basic Scheme Balanced Growth Portfolio 2 ING MPF Basic Scheme Capital Guaranteed Portfolio 3 ING MPF Basic Scheme Hong Kong Equity Portfolio 4 ING MPF Basic Scheme International Equity Portfolio 5 ING MPF Basic Scheme MPF Conservative Portfolio 6 ING MPF Basic Scheme Stable Growth Portfolio Annual Report 2011/12 141

144 Appendix 3 List of Registered MPF Schemes and Constituent Funds (cont d) (as at 31 March 2012) Name of Trustee MPF Scheme Underlying Constituent Funds ING Pension Trust Limited Manulife Provident Funds Trust Company Limited ING MPF Master Trust Comprehensive Scheme Manulife Global Select (MPF) Scheme 1 ING MPF Comprehensive Scheme Asian Equity Portfolio 2 ING MPF Comprehensive Scheme Balanced Growth Portfolio 3 ING MPF Comprehensive Scheme Capital Guaranteed Portfolio 4 ING MPF Comprehensive Scheme Growth Portfolio 5 ING MPF Comprehensive Scheme Hong Kong Equity Portfolio 6 ING MPF Comprehensive Scheme International Equity Portfolio 7 ING MPF Comprehensive Scheme MPF Conservative Portfolio 8 ING MPF Comprehensive Scheme Stable Growth Portfolio 9 ING MPF Comprehensive Scheme Stable Portfolio 1 Manulife MPF 2015 Retirement Fund 2 Manulife MPF 2020 Retirement Fund 3 Manulife MPF 2025 Retirement Fund 4 Manulife MPF 2030 Retirement Fund 5 Manulife MPF 2035 Retirement Fund 6 Manulife MPF 2040 Retirement Fund 7 Manulife MPF 2045 Retirement Fund 8 Manulife MPF Aggressive Fund 9 Manulife MPF China Value Fund 10 Manulife MPF Conservative Fund 11 Manulife MPF European Equity Fund 12 Manulife MPF Fidelity Growth Fund 13 Manulife MPF Fidelity Stable Growth Fund 14 Manulife MPF Growth Fund 15 Manulife MPF Hang Seng Index Tracking Fund 16 Manulife MPF Healthcare Fund 17 Manulife MPF Hong Kong Bond Fund 18 Manulife MPF Hong Kong Equity Fund 19 Manulife MPF Interest Fund 20 Manulife MPF International Bond Fund 21 Manulife MPF International Equity Fund 22 Manulife MPF Japan Equity Fund 23 Manulife MPF North American Equity Fund 24 Manulife MPF Pacific Asia Bond Fund 25 Manulife MPF Pacific Asia Equity Fund 26 Manulife MPF Stable Fund 142 Mandatory Provident Fund Schemes Authority

145 Name of Trustee MPF Scheme Underlying Constituent Funds Manulife Provident Funds Trust Company Limited Manu-Lifestyle (MPF) Scheme 1 Manulife MPF 2015 Retirement Fund 2 Manulife MPF 2020 Retirement Fund 3 Manulife MPF 2025 Retirement Fund 4 Manulife MPF 2030 Retirement Fund 5 Manulife MPF 2035 Retirement Fund 6 Manulife MPF 2040 Retirement Fund 7 Manulife MPF 2045 Retirement Fund 8 Manulife MPF Aggressive Fund 9 Manulife MPF Conservative Fund 10 Manulife MPF Growth Fund 11 Manulife MPF Interest Fund 12 Manulife MPF Stable Fund MassMutual Trustees Limited MASS Mandatory Provident Fund Scheme 1 Asian Balanced Fund 2 Asian Pacific Equity Fund 3 European Equity Fund 4 Global Bond Fund 5 Global Equity Fund 6 Global Growth Fund 7 Global Stable Fund 8 Greater China Equity Fund 9 Guaranteed Fund 10 Hong Kong Equities Fund 11 Japan Equity Fund 12 MPF Conservative Fund 13 US Equity Fund Principal Trust Company (Asia) Limited Principal Trust Company (Asia) Limited Principal Trust Company (Asia) Limited Principal MPF Scheme Series Aggressive Growth Fund 2 Balanced Growth Fund 3 Guaranteed Fund 4 MPF Conservative Fund 5 Stable Growth Fund Principal MPF Scheme Series Principal Global Growth Fund 2 Principal Hang Seng Index Tracking Fund 3 Principal HK Dollar Savings Fund 4 Principal Long Term Accumulation Fund 5 Principal Long Term Guaranteed Fund 6 Principal MPF Conservative Fund Principal MPF Scheme Series Principal Asian Equity Fund 2 Principal Capital Guaranteed Fund 3 Principal China Equity Fund 4 Principal Global Growth Fund 5 Principal Hang Seng Index Tracking Fund 6 Principal HK Dollar Savings Fund 7 Principal Hong Kong Bond Fund 8 Principal Hong Kong Equity Fund Annual Report 2011/12 143

146 Appendix 3 List of Registered MPF Schemes and Constituent Funds (cont d) (as at 31 March 2012) Name of Trustee MPF Scheme Underlying Constituent Funds 9 Principal International Bond Fund 10 Principal International Equity Fund 11 Principal Long Term Accumulation Fund 12 Principal Long Term Guaranteed Fund 13 Principal MPF Conservative Fund 14 Principal Stable Yield Fund 15 Principal US Dollar Savings Fund 16 Principal US Equity Fund RBC Dexia Trust Services Hong Kong Limited RBC Dexia Trust Services Hong Kong Limited SHKP MPF Employer Sponsored Scheme Standard Chartered MPF Plan Advanced 1 Fidelity Balanced Fund 2 Fidelity Stable Growth Fund 3 HSBC Capital Stable Fund 4 RCM Balanced Fund 5 RCM Stable Growth Fund 6 SHKP MPF Fund 7 Standard Chartered Career Average Guaranteed Fund SHKP 8 Standard Chartered MPF Conservative Fund SHKP 1 Fidelity Global Investment Fund Balanced Fund 2 Fidelity Global Investment Fund Capital Stable Fund 3 Fidelity Global Investment Fund Growth Fund 4 HSBC MPF A Balanced Fund 5 HSBC MPF A Hong Kong and Chinese Equity Fund 6 HSBC MPF A Stable Fund 7 Invesco Global Balanced Fund 8 Invesco Global Equities Fund 9 Invesco MPF Bond Fund 10 Legg Mason Balanced Fund 11 Legg Mason Hong Kong Equities Fund 12 Legg Mason Stable Growth Fund 13 RCM Balanced Fund 14 RCM Capital Stable Fund 15 RCM Growth Fund 16 Schroder MPF Asian Fund 17 Schroder MPF Balanced Investment Fund 18 Schroder MPF HK Dollar Fixed Income Fund 19 Standard Chartered Balanced Fund Advanced 20 Standard Chartered Career Average Guaranteed Fund Advanced 144 Mandatory Provident Fund Schemes Authority

147 Name of Trustee MPF Scheme Underlying Constituent Funds 21 Standard Chartered Growth Fund Advanced 22 Standard Chartered MPF Conservative Fund Advanced 23 Standard Chartered Stable Fund Advanced 24 Templeton MPF Asian Balanced Fund 25 Templeton MPF Global Bond Fund 26 Templeton MPF Global Equity Fund RBC Dexia Trust Services Hong Kong Limited Standard Chartered MPF Plan Basic 1 Standard Chartered Balanced Fund Basic 2 Standard Chartered Career Average Guaranteed Fund Basic 3 Standard Chartered Growth Fund Basic 4 Standard Chartered MPF Conservative Fund Basic 5 Standard Chartered Stable Fund Basic Sun Life Trustee Company Limited Sun Life Rainbow MPF Scheme 1 Sun Life First State MPF Balanced Portfolio Fund 2 Sun Life First State MPF Conservative Fund 3 Sun Life First State MPF Fixed Income Fund 4 Sun Life First State MPF Global Bond Fund 5 Sun Life First State MPF Hong Kong Equity Fund 6 Sun Life First State MPF Progressive Growth Fund 7 Sun Life First State MPF Stable Income Fund 8 Sun Life Invesco MPF Global Equities Fund 9 Sun Life Invesco MPF Hong Kong and China Equity Fund 10 Sun Life RCM MPF Asian Equity Fund 11 Sun Life RCM MPF Balanced Fund 12 Sun Life RCM MPF Capital Stable Fund 13 Sun Life RCM MPF Stable Growth Fund Annual Report 2011/12 145

148 Appendix 4 List of Recognized Institutions/Professional Bodies Providing Core CPD Activities for MPF Intermediaries (as at 31 March 2012) Hong Kong Retirement Schemes Association - The Hong Kong Securities Institute Institute of Financial Planners of Hong Kong Institute of Professional Education And Knowledge of Vocational Training Council Management and Executive Development Centre of The Hong Kong Polytechnic University 146 Mandatory Provident Fund Schemes Authority

149 Appendix 5 List of Corporate Administrators who Administer Pooling Agreements for ORSO Schemes (as at 31 March 2012) Authorized Insurers American International Assurance Company (Bermuda) Limited American International Assurance Company, Limited China Life Insurance (Overseas) Company Limited Hang Seng Insurance Company Limited HSBC Life (International) Limited ING Life Insurance Company (Bermuda) Limited Manufacturers Life Insurance Company The Manulife (International) Limited Sun Life Hong Kong Limited Corporate Trust Companies AIA Pension and Trustee Co. Ltd. American International Assurance Company (Trustee) Limited AXA China Region (Bermuda) Limited AXA China Region Trustees Limited AzureTrustees Limited Bank Consortium Trust Company Limited Bank of Communications Trustee Limited BOC Group Trustee Company Limited China Life Trustees Limited HSBC Institutional Trust Services (Asia) Limited HSBC Trustee (Hong Kong) Limited ING Pension Trust Limited Manulife Provident Funds Trust Company Limited Principal Trust Company (Asia) Limited RBC Dexia Trust Services Hong Kong Limited Shanghai Commercial Bank Trustee Limited Sun Life Trustee Company Limited Annual Report 2011/12 147

150 Appendix 6 Work of MPFA as the Registrar of Occupational Retirement Schemes Monitoring of ORSO registered schemes including examination of annual returns and audited financial statements (5 190 annual returns processed) Monitoring of ORSO exempted schemes including examination of compliance certificates and membership statements (19 overseas compliance certificates and 603 membership statements processed) Processing of applications for ORSO registration and exemption (6 schemes registered and 27 schemes exempted) Registrar of Occupational Retirement Schemes Processing of cancellation of registration/notice of termination of ORSO registered and exempted schemes/withdrawal of exemption certificate (187 registered schemes and 106 exempted schemes) Granting consent for changes of pooling agreements (111 ORSO registered schemes processed) Processing of applications for MPF exemption (2 ORSO registered schemes) and withdrawal of MPF exemption (126 ORSO registered schemes and 17 ORSO exempted schemes) Processing of changes of trustees for MPF exempted ORSO registered schemes (122 applications processed) Processing of notifications of changes in relation to scheme name, administrator, address and employer (1 030 notifications of changes processed) Note: Figures denote workload for the year ended 31 March 2012 Other major work include recovery of default contribution, collection of periodic fee, complaint and enquiry handling, and maintenance of the ORSO public register. 148 Mandatory Provident Fund Schemes Authority