Consumer Council Submission to the Mandatory Provident Fund Schemes Authority on Review of Withdrawal of MPF Benefits

20 March 2012
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The Consumer Council (the Council) is pleased to submit its views concerning the consultation paper issued by the Mandatory Provident Fund Schemes Authority (MPFA) on proposals on the withdrawal of Mandatory Provident Fund (MPF) benefits.

The Council is of the general view that the proposals put forward in the consultation paper are positive steps towards meeting the needs of MPF scheme members by providing greater flexibility in withdrawal of MPF benefits, thereby enabling scheme members to effectively exercise their right to better manage their retirement matters.

The following sets out the Council's responses to specific questions raised in the consultation paper for consideration of the MPFA.

Proposal (1): Voluntary staged withdrawal on retirement

1. Do you agree that scheme members on reaching retirement should be allowed to choose whether to withdraw their MPF benefits in a lump sum or gradually over their retirement years?

Yes, the Council welcomes the MPFA's proposal to provide scheme members with the choice of whether to withdraw their MPF benefits in a lump sum or gradually over the retirement years, to better suit their individual circumstances.

To enable scheme members to make informed choices, the Council suggests that the MPFA should conduct educational programs to raise scheme members' awareness of the choices available for them to deal with their MPF benefits upon retirement, and to help them understand the effect of the different payment modes (e.g. when they become eligible to withdraw their accrued benefits on retirement, scheme members are not obliged to make a lump sum withdrawal at once and realize all their investment losses in one go but can opt for staged withdrawal).

2. If you support the proposal to permit scheme members to withdraw their MPF benefits gradually over their retirement years, do you agree that the withdrawal arrangement (e.g. frequency or amount per withdrawal) should be left to be agreed between the MPF trustee and the scheme member or some requirements (e.g. a minimum amount per withdrawal or a maximum number of withdrawals per year) should be prescribed in the legislation?

To optimize the flexibility of withdrawal of MPF benefits by scheme members, the Council believes that there should not be any restrictive conditions or requirements prescribed in the legislation in relation to withdrawal frequency or amount per withdrawal.

Cost is an important concern for many scheme members. Considering that a wide variety of payment arrangements may be introduced by MPF service providers under the voluntary staged withdrawal option, the Council would be concerned if provision of this option would give service providers an excuse to impose more fees and charges on scheme members.

The Council suggests that service providers be required to clearly spell out the fee terms for their different payment arrangements so that scheme members can appreciate the cost implication of each arrangement.

3. Do you have any other views on permitting scheme members to withdraw their MPF benefits either in a lump sum or gradually over their retirement years?

The Council is of the view that the choices on mode of withdrawal should not be mutually exclusive to oblige scheme members to choose either one or the other. Instead, scheme members should be allowed the flexibility of choosing one or a combination of payment arrangements with possible change over time to suit their needs. For example, scheme members should be allowed to choose lump sum payment of part of their MPF benefits upon retirement and phased withdrawal of the remaining part.

To better safeguard the interests of scheme members, the Council urges the MPFA to closely monitor the range and charges of payout products to be developed by the MPF industry so that the products would not be inappropriately designed or too costly, and to deter any improper sales and marketing practices (e.g. enticing retirees to choose investing their MPF benefits in risky or long-term options) to the disadvantages of retirees.

The Council considers it appropriate that relevant provisions be set in the governing rules of the MPF schemes to require service providers to take into account product suitability and exercise restraint when promoting payout products to retirees.

Proposal (2): Early withdrawal of MPF benefits on ground of "terminal illness"

4. Do you agree that a scheme member who suffers from an illness that is likely to reduce the life expectancy of the scheme member ("terminal illness") should be allowed to withdraw MPF benefits early?

Yes, the Council welcomes the MFPA's proposal of introducing an additional ground of "terminal illness" for early withdrawal of MPF benefits by scheme members. Early access to MPF benefits would enable scheme members with terminal medical condition to meet their financial needs.

In the event this ground is added, the Council considers it important that the definition of "terminal illness" and the supporting documentary evidence required should be clearly set out in the regulation.

5. If you support the proposal of allowing early withdrawal on the proposed ground, do you think that the remaining life expectancy of 6 months, 12 months or some other time period should be used as the criterion for allowing early withdrawal?

As regards issuing a prescribed time period as qualifying remaining life expectancy for early withdrawal of MPF benefits, the Council does not support setting a specified time limit for reason that medical practitioners should not be obliged to certify the length of remaining life expectancy of patients suffering from "terminal illness".

Instead, the Council considers that certification by a medical practitioner that a scheme member having terminal illness should be adequate for application of early withdrawal of MPF benefits. The Council is of the view that lenient treatment should be provided to scheme members with severe medical conditions for them to make the best of their remaining life and make necessary arrangement with the use of their MPF benefits.

6. If you support the proposal of allowing early withdrawal on the proposed ground, do you think that certification that the scheme member is suffering from a "terminal illness" should be provided

- by one or alternatively two medical practitioners, and
- whether they may be either a registered medical practitioner or registered Chinese medicine practitioner, and
- whether further requirements on the qualifications of the practitioners (such as some relevant medical specialty) should apply?

The Council believes that certification is necessary to prevent abuse, but the requirement should not be too harsh as to impose on scheme members at the final stage of life a very stringent certification requirement before being allowed to withdraw their accrued benefits.

The Council is of the view that early withdrawal of MPF benefits under the proposed ground should not pose a substantial burden to a scheme member concerned, and certification by a registered medical practitioner, whether of western or Chinese medicine, should be considered as adequate evidential support for application of early withdrawal of MPF benefits.

In relation to improper issue of certification by medical practitioners, this relates to professional ethics and should be dealt with separately by the relevant professional bodies.

7. If you support the proposal of allowing early withdrawal on the proposed ground, do you think that a cap on the withdrawal amount should be prescribed? If so, what would you suggest as an appropriate cap for the purpose?

The Council appreciates that this proposal aims to cap the withdrawal amount so that scheme members will not prematurely deplete their MPF benefits in case they recover in future. Nevertheless, the Council believes that it should be the choice of the scheme members whether to withdrawal all their MPF benefits in a lump sum or retain part of the benefits in the MPF system to provide retirement protection if future need arises.

The Council suggests an advice be issued where there is an application for lump sum withdrawal of MPF benefits. This advice should serve to remind scheme members that the withdrawal of MPF benefits should not be taken as an option to meet short term financial needs, and the alternative option of keeping some part of the benefits in the MPF scheme should be raised.

8. Do you have any other views on permitting scheme members to withdraw their MPF benefits on the proposed ground?

At this stage, the Council does not have any views on what other grounds (other than the proposed ground of "terminal illness") to add in respect of early withdrawal of MPF benefits.

The Council believes the most important thing at present is for the MPFA to make terms of the proposed withdrawal arrangements clear to the public and give advice to scheme members on the options available for withdrawal of MPF benefits upon retirement.

The Council would take this opportunity to urge the MPFA to continue to carry out review of the MPF system in light of operational experience and market developments (e.g. public demand for extending the specific circumstances to include non-retirement purposes for early withdrawal of MPF benefits), to cater for the best interests of the scheme members.