mpf updates for insurance intermediaries september 30, 2005

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MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

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Page 1: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

MPF UPDATESFOR

INSURANCE INTERMEDIARIES

September 30, 2005

Page 2: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

CONTENT Change in the MPF Market Basics for Employers and Employees Basics for MPF Individual Intermediaries Registration Issues Pertaining to MPF

Intermediaries Performance Presentation Standards for

MPF Investment Funds Cases Study

Page 3: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Change in the MPF Market

199 224

1639

1913

269 289

0200400600800

100012001400160018002000

ParticipatingEmployer

ParticipatingEmployee

Self - employedPerson

Feb. 28, 2001Jun. 30, 2005

Source: The MPFA

(‘000)

25

274

20

Page 4: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Change in the MPF Market No. of

Approved Trustee

No. of Registered Schemes

No. of Approved Constituent Funds

Feb. 28, 2001 20 51 299

Jun. 30, 2005 19 47 328

Source: The MPFA

Page 5: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Change in the MPF Market

11560

131496

0

20000

40000

60000

80000

100000

120000

140000

Feb. 28, 2001 Jun. 30, 2005

Aggregate Net AssetValue of All Schemes

HK$million

Source: The MPFA

119,936

Page 6: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Change in MPF Market

Corporate Individual

Feb. 28,2001

471 30,660

Mar. 31,2005

432 24,152

No. of Registered Intermediaries

Source: The MPFA

Page 7: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Basics for Employers & Employees

Page 8: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Monthly Relevant Income Minimum: HK$5,000 Maximum: HK$20,000 Contribution rate for employees

Employer: 5% Employee: 5% Contribution rate for self - employed person

5%

Mandatory Contribution

Page 9: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Example Monthly Relevant Income: HK$4,000 Employer’s Mandatory Contribution Employee’s Mandatory Contribution

HK$200

HK$0

Page 10: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Relevant Income any items paid in monetary terms paid or

payable by an employer to an employee in consideration of the employment contract

but exclude any housing allowance & housing benefits, any severance or long service payment

Page 11: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Permitted Period The period within which an employer must

enroll his employees in an MPF scheme, I.e. 60 days of their employment

for casual employee, the permitted period is the first 10 days regardless of the type of scheme in which he is enrolled

Page 12: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Contribution Day Employers are required to pay mandatory

contributions to the scheme’s trustee on or before the contribution day

for employees: 10th day after the last day of a calendar month

for casual employees not members of an industry 10th day after the last day of the relevant

contribution period

Page 13: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Contribution Day for causal employees in an industry scheme

the next working day (other than Saturday) immediately after the payment of relevant income for the relevant contribution period or

the 10th day after the last day of the relevant contribution period

Page 14: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Contribution Payment Employer is required to make contribution

for the employee from the first day of such employment

employee is not required to contribute for the first 30 days of employment and any wage period / calendar month commencing on or before the 30th day of employment

Page 15: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Contribution Documents Remittance Statements Monthly pay - record

the employee’s relevant income mandatory & voluntary contribution amount

by employer & employee respectively date of contribution payment to the trustee

Page 16: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Example Monthly Relevant Income: HK$30,000 Employer’s Mandatory Contribution: Employee’s Mandatory Contribution:

HK$1,000

HK$1,000

Page 17: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Tax Allowance Mandatory contribution by an employee

are tax deductible, maximum of HK$12,000 per year

Mandatory contribution by an employer are tax deductible.

MC + VC / contribution to an ORSO scheme are deductible up to 15% of total yearly emoluments of the employees

Page 18: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Default Contribution ===> Contribution surcharge:

at a flat rate of 5% of the amount of mandatory contribution in arrears

===> Financial penalty at the higher of HK$5,000 or 10% of the

amount of mandatory contribution in arrears

Page 19: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Offences For employers

A fine of HK$100,000 & to imprisonment of 6 months on the first occasion

each subsequent occasion, the fine is HK$200,000 & the imprisonment is 12 months

Page 20: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Offences for self - employed person

a fine of HK$50,000 & to imprisonment for 6 months on the first occasion

each subsequent occasion, the fine is HK$100,000 & the imprisonment is 12 months

Page 21: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Benefits Withdrawal attain the retirement age of 65 early retirement after reaching the age of 60 Permanent departure from Hong Kong once in a person’s lifetime Death Total incapacity Small balance account >HK$5,000 & no mandatory contribution in the

past 12 months

Page 22: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Long Service Payment / Severance Payment The employer is entitled to offset the LSP /

SP out of the accrued benefits derived from the contributions made by the employer in respect of the employee in the MPF scheme

Page 23: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Coverage Employees

a person engaged by an employer under an employment contract & to whom the Employment Ordinance applies

have been employed for 60 days location of work & number of hours worked are

irrelevant. both the employee & employer are required to

contribute 5% of the employee’s relevant income

Page 24: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Coverage Casual employees

any person employed in the selected industries by an employer on a day - to day basis or for a fixed period of less than 60 days

only catering & construction industries for non - daily paid casual employees:

both the employee & employer are required to contribute 5% of the employee’s relevant income

Page 25: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Coverage Casual employees

for daily - paid casual employees in an industry scheme follow this table:

Page 26: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Coverage

Daily Contribution(HK$)

Employer’sContribution

Employee’sContribution

Below 160 7.5 N.A.

160 – 259 7.5 7.5

260 – 389 15 15

390 – 519 22.5 22.5

520 – 650 30 30

Over 650 30 30

Scale of contribution for daily - paid casual employees in an industry scheme

Page 27: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Coverage Self - employed person

any person whose relevant income (otherwise than in the capacity as an employee) is derived from his production of goods or services in Hong Kong, or his trade in goods or services in or from Hong Kong

example: sole proprietor or a partner of a partnership make contribution regardless of whether they have

filed tax returns or obtained business registration

Page 28: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Coverage Exempted person

employees & self - employed persons who at the date the MPF system is implemented , I.e. Dec. 1, 2000 have attained the age of 64.

Domestic Helper Self - employed licensed hawker

Page 29: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Coverage Exempted person

people covered by statutory pension & provident fund schemes, e.g. civil servants & subsidized or grant school teachers

people from overseas who enter Hong Kong for employment for 13 months or less

people from overseas & are covered by overseas retirement schemes

Page 30: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Coverage Exempted person

employees of the European Union Office of the European Commission in Hong Kong

members of an MPF exempted ORSO schemes

Page 31: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Employers any person who has entered into a contract

of employment to employ another person as his employee

are required to enroll their employees who have been employed for 60 calendar days to an MPF scheme

display the certificate issued by the MPFA at the premises

Page 32: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Employers Enroll causal employees in the catering &

construction industries in an MPF scheme regardless of the duration of employment

Page 33: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Types of MPF Schemes Employer Sponsored Scheme

open only to the relevant employees of a single employer & its associates

high setup cost only cost effective for large companies more control on choice of service providers &

funds

Page 34: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Types of MPF Schemes Master Trust Scheme

open to the relevant employees of different employers, self - employed persons & deferred members

high degree of efficiency from economies of scale

Page 35: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Types of MPF Schemes Industry Scheme

specially designed for industries with high labor mobility & daily wage practice

for catering & construction industries optional for employers in these 2 industries to

enroll their employees in such a scheme

Page 36: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Basics for MPF Intermediaries

Page 37: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

MPF Intermediary selling MPF schemes advising clients on constituent funds or

underlying approved pooled investment funds of MPF schemes

corporate intermediary individual intermediary not include a professional whose act of giving

advice is wholly incidental to the practice of his profession, e.g. lawyer

Page 38: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Regulatory Framework Objectives

minimizing the risks of mis - selling maximizing protection for scheme members

uses decentralized & coordinated approach relying on the following regulators:

the Monetary Authority the Securities and Futures Commission the Insurance Authority & the 3 self - regulatory

organizations

Page 39: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Regulatory Framework 3 SROs:

The Hong Kong Federation of Insurers The Hong Kong Confederation of Insurance Brokers The Professional Insurance Brokers Association

Limited

The MPFA the leading regulator registering & monitoring MPF intermediaries

Page 40: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Fit & Proper Criteria A person is not fit & proper if he:

has been found by a court to have acted fraudulently or dishonestly, has been convicted of a criminal offence

bankrupt has been denied membership or registration

of any professional or regulatory body cannot fulfill the CPD requirement

Page 41: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Role of MPF Intermediaries Prospecting

identify himself provide information of the corporation he

represents explanation

Understand the client’s needs

Page 42: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Role of MPF Intermediaries Selling / Advising

explain the key features give offering documents, e.g. Principle Brochure &

marketing materials to the client clearly explains details of any guaranteed funds give advice only if relevant license is valid, I.e.

insurance or security ensure information is not deceptive avoid conflict of interest

Page 43: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Role of MPF Intermediaries make sure the client make all payment to the

trustee do not accept cash

After sales services handling enquiries & complaints

Page 44: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Registration Issues Pertaining to MPF Intermediaries Effective October 1, 2005

the MPFA will issue MPF Intermediary Certificate instead of the MPF Card

MPF individual intermediaries must identify himself by showing business cards bearing the MPF registration number

waiving return of expired & outdated MPF Cards / Certificates

Page 45: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Registration Issues Pertaining to MPF Intermediaries Alignment of expiry date of corporate and

individual intermediaries compliance with Continuing Professional

Development (CPD) requirement one of the criteria in assessing the fitness &

properness of applicants & registrants

Page 46: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Performance Presentation Standards for MPF Investment Funds

To specify methods for presenting: fund performance information fund risk indicators fund descriptor

To present scheme members with actual, historical information on the performance of MPF funds.

Page 47: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Performance Presentation Standards for MPF Investment Funds

The period since launch 1 year, 5 year & 10 year No return figures for the period since launch

if track record < 6 months. No return figures for the period since launch

if the period of since launch > 10 years. Rate of return < 1 year, NO annualized

figures.

Page 48: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Performance Presentation Standards for MPF Investment Funds

Guaranteed Fund the following information must be disclosed

in the fund fact sheet: guarantor guaranteed rate conditions for the guarantee (if applicable)

Page 49: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Performance Presentation Standards for MPF Investment Funds

Calculation of fund performance a fixed formula use Net Asset Value

Calculation of fund risk indicators use Annualized Standard Deviation based on the monthly rate of return of the

fund over the past 3 years. Not applicable for guaranteed fund.

Page 50: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Performance Presentation Standards for MPF Investment Funds

Standards for Fund Descriptor types of assets types of non - cash assets the maximum exposure to equity geographical region

Page 51: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Performance Presentation Standards for MPF Investment Funds

Descriptor to be used: Mixed Assets Fund - [region] - max. equity [%]

lifestyle or balanced fund

Equity Fund - [region] Bond Fund - [region] Money Market Fund - [region]

Capital Preservation Fund

Guaranteed Fund - [guarantee features] Uncategorised Fund - [region]

Page 52: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Fund Choices Geographical

Global North America Europe Japan Asia Pacific ex Japan Hong Kong Korea Greater China

Page 53: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Fund Choices Lifestyle

Capital Preservation As per the MPF Ordinance requirement

Guaranteed Soft Hard

Capital Stable (20 - 40% Equities) Stable Growth (40 - 60% Equities) Balanced (60 - 80% Equities) Growth (80% + Equities)

Page 54: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Fund Choices Type of Investment

Money Market Fixed Income Equities

Page 55: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Fund ChoicesFeb. 28, 2001 Jun. 30, 2005

Balanced Fund 46% 51%

Equity FundEquity Fund 15% 17%

Capital Preservation Fund 15% 15%

Guaranteed Fund 21% 15%

Bond FundBond Fund 1% 1%

Money Market Fund 2% 1%

Source: The MPFA

Page 56: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Fund Performance Unit to Unit

Example

Unit Price

Dec. 1, 2000 May 31, 2005

HK$100 HK$111.12

1 - year cumulative performance since launch: 11.12

Page 57: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Fund Performance Cumulative Interim Rate

Declare monthly interest rate

Page 58: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Fund Performance Dollar Cost Averaging

Example

Month Contribution Unit Price Unit BoughtJan. 1,000$ 100$ 10Feb. 1,000$ 80$ 12.5Mar. 1,000$ 110$ 9.09Total 3,000$ 31.59Unit Cost 94.96$ Net Asset Value as of Mar. 3,475.00

Page 59: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Case Study Case 1

Total salary of a security guard was HK$5,500. The employer had revised his employment

contract 3 times resulting in different salary structure.

Breakdown: housing allowance: HK$3,000 basic salary & hardship allowance: HK$2,500

Page 60: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Case Study Case 1

The MPFA found this case unacceptable The complainant’s consent to act as

prosecution witness The employer was fined HK$12,000

Page 61: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Case Study Case 2

2 Directors were responsible for the company’s MPF contribution arrangement

Delay MPF contribution payment to trustee after making deduction from the income of an employee between May 2004 & January 2005

Each was fined HK$13,600

Page 62: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Case Study Case 3

an employer had default contribution for a long time

do follow the order of the court the MPFA discovered that the employer

owned a private car under his name the MPFA with the Bailiff to get car the employer appeared & got cash from ATM

Page 63: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005
Page 64: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Question 1 What is the employer & employee’s

contribution for an employee with monthly relevant income of HK$30,000?

A. HK$1,000 B. HK$3,000 C. HK$2,000 D. HK$ 6,000

Page 65: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Question 2 Does a wife of a director working in his

limited company & receiving income need to have MPF coverage?

A. Yes B. No

Page 66: MPF UPDATES FOR INSURANCE INTERMEDIARIES September 30, 2005

Question 3 Which of the following person is exempted

from the MPF Ordinance? A. Part-time worker B. Home driver C. Taxi driver D. Domestic Helper