Our Ref: 51/WKC/254

9 September 1998

Mr Rafael S Y Hui

Secretary for Financial Services

Hong Kong

Dear Mr Hui

Mandatory Provident Fund (MPF)

On behalf of the Hong Kong Coalition of Service Industries, I would like to offer a few observations and comments on the Mandatory Provident Fund (MPF) as follows.

Increasingly, there appears to be a feeling within the community that the start of MPF should be delayed because of the present economic slowdown. Many are questioning whether MPF will harm employers, particularly small employers, who will be required to pay MPF contributions and, in consequence, will experience a 5 % increase in their payroll expenses. Furthermore, retailers are concerned that there might be a further slump in their sales when employees are required to pay 5 % of their salaries as MPF contributions – which will decrease the amount available to employees for retail spending.

It is anticipated that those concerns will be expressed more vociferously as the Government moves closer to the start of MPF.

As the Government is likely to come under increasing pressure to delay the start of MPF, the Coalition felt it was appropriate to write now and urge the Government to commence MPF as soon as possible.

The Coalition fully supports the Government's MPF initiative. MPF will work over the long term to benefit all Hong Kong people and to ease the demands on Government for social welfare for the elderly. Not only will it benefit the financial services industry by creating additional employment, but it will also strengthen the fundamentals of our financial infrastructure through developing and stabilising the investment market of Hong Kong. Some short term pain is worthwhile to achieve those anticipated long term gains. Moreover, it is considered that if MPF were substantially delayed, it might be difficult for Government to revive or maintain the initiative. A postponement of MPF could lead to renewed demands for a Singapore-style Central Provident Fund which, in our view, would not be in the interest of Hong Kong.

Rather than postponing MPF, the Government should consider other options to alleviate the concerns of small companies that MPF might adversely affect them. One such step could be to permit MPF schemes to be established and to operate on a voluntary basis initially. This will have the advantage of putting all the necessary regulatory and administrative arrangements in place, thus ensuring the smooth running of MPF when the latter becomes fully mandatory.

In conclusion, the Coalition urges the Government to consider alternative courses rather than simply postponing the start of MPF.

Thank you for your attention.

Yours sincerely

Stanley Ko

Chairman