HONG KONG -- Hong Kong's pension industry executives anticipate contributions to the country's Mandatory Provident Fund will start in January 2000 -- if subsidiary legislation is given the go-ahead April 1.
However, if the vote fails because of wrangling in the Legislative Council, sources say, the MPF could be delayed another year or even scrapped completely.
Although Hong Kong's Legislative Council passed an amendment bill on the MPF Feb. 25 by a 28-24 vote, subsidiary legislation was proposed that could further delay the bill's progress and its eventual implementation, industry sources say.
The subsidiary legislation on the scheme's investment requirements has to be passed by April 1 if the fund is to have any chance of being implemented by 1999 and taking contributions in 2000.
The main law establishing the MPF was passed in principle in 1995, but the complex nature of the issue has hampered its progress.
Greg Willis, chief executive at HSBC Provident Fund Services, said there is a "high probability" the MPF bill will go through in April.
"I'm looking at the MPF (contributions) starting on the first of January 2000, but if the councilors vote against it, then there will be about a 12 months delay," he said.
Hong Kong's other big players in the industry are equally confident of the 2000 contribution date.
Desmond Chan Kwok-kit, pension subcommittee chairman of the Hong Kong Investment Fund Association, is less optimistic. While he hopes the bill will go through, he sees many hurdles ahead.
"The coffin lid can still be put on the MPF if the current councilors don't vote it in in April. If it doesn't go ahead then, I don't think it will happen at all because new councilors have to be voted in, new parties -- each with their own politics and policies -- need to rediscuss everything and there would be no deadlines so it could take forever," Mr. Chan said.
Mr. Chan, who also is head of Provident Fund Services at Jardine Fleming, said he does not see contributions to the MPF commencing until 2000 because enrollment by Hong Kong companies ends in July 1999. Registration should be complete by the end of 1999.
Carolyn Butler, managing director at AIA Pensions & Trustee Co., and Rob Pocknee, general manager at National Mutual, say they expect the April 1 vote to approve the MPF changes and contributions.
"The mood in the industry is one of general frustration that this has taken three years to even reach this point. And there's also a lot of skepticism that, if the MPF doesn't go through in April, there's the possibility that it might be dropped altogether," Ms. Butler said.
Subsidiary legislation and councilors' concerns, which will be addressed in April, focus on three main issues: the proposed introduction of further investment restrictions, possible negative impact of a capital preservation fund and altering the percentage of Hong Kong dollar investment in the fund.
Chan Yuen-han of the Federation of Trade Unions, Hong Kong, argues that after the Asian crisis is over, tighter investment regulations will be needed so employees' contributions are not at risk.
Jardine Fleming's Mr. Chan disputes this, saying the fewer the investment restrictions imposed on the fund and its managers, the better the rate of return.
Mr. Chan, along with others in the industry, are concerned about the capital preservation fund -- which involved the fund's trustees being able to charge administrative and investment management fees, but only if the fund's gross return exceeds the bank's savings rate.
The fear is this will result in lower rates of return from the investments.
Last, but by no means least, is the issue of Hong Kong dollar investment in the fund. The current proposed investment is 30%, but councilors -- including the trade union federation's Mr. Chan -- argue this should be raised to 50% and to restrict investments in volatile stock markets to 50%.
Industry sources fear a drastic hike in Hong Kong dollar investment could make the fund vulnerable if the local currency's link to the U.S. dollar is ever cut -- a hot issue of speculation in the past few months.
Stuart Leckie, Asia Pacific chairman at RCP & Partners, Hong Kong, and president of Stirling Finance, says although he expects the council to approve the MPF, he believes the fund will have an initially hostile reception in Hong Kong.
"It's really just the timing of it. Asia is still in the throes of going through its crisis and times are tough in Hong Kong. Employees won't like losing 5% of their salary at the moment, nor will companies that already are feeling the strain like the thought of setting up a pension fund at this time," Mr. Leckie said.
The Hong Kong government expects the MPF scheme to cover a working population of 3 million people.
It is estimated about 2.2 million workers in Hong Kong are not covered by any type of retirement plan.