Glossary

A

Accounting Date

30 September of each year.

Accrued Benefit

In relation to a registered scheme, means the amount of each scheme member's beneficial interest in the registered scheme at any time, derived from the contributions made by or in respect of that scheme member, together with the income or profits arising from any investments thereof, but taking into account any losses in respect thereof.

Administrator

A plan administrator is a person or company responsible for managing a retirement fund or a pension plan on behalf of its participants and beneficiaries. The plan administrator is tasked with ensuring the funds are properly collected and distributed to all qualified participants.

Annual Performance

The gains or losses made by an investment in any given financial year.

Annualised Peformance

A process by which investments with 12 or more months of completed history are calculated on the basis of their month-end values. The formula used for converting annualised returns to date is: (1+CR%)^(1/n) where "CR" is the cumulative return (in decimal format) and "n" is the number of years being analyzed.

Approved Pooled Investment Funds

A collective investment scheme approved by the Authority pursuant to the MPF Ordinance for investment by provident fund schemes registered under the MPF Ordinance.

Asset Allocation

The portions of an investment that have been assigned to specific asset classes such as equities, bonds or cash.

Asset Class

A specific type of investment tool such as equities, bonds or cash.

Authority

The Mandatory Provident Fund Schemes Authority of Hong Kong.

C

Capital Preservation Funds

Statutory requirements dictate that such funds must be offered by all MPF service providers in Hong Kong. This fund has restrictions on investments, with assets only allow to invest in short-term instruments, e.g. cash and short-term debt securities.

Constituent Funds

A separate pool of assets of a Master Trust, which is invested and administered separately from other assets of the Master Trust.

Contract of Employment

It has the same meaning as in the Employment Ordinance (Cap.57), and "employment" shall be construed accordingly.

Contribution

Payment made to a retirement scheme of an employee’s account. For MPF, contributions may consist of mandatory and voluntary contributions by the Employer and the employee. Contributions must be made 10 calendar days after the last day of the normal contribution period (usually each calendar month).For ORSO, contributions are subject to the applicable scheme rules.

Contribution Period

Contribution period refers to each period for which the employer pays income to the employee. For example, if it is stated in the employment contract that employee's remuneration is calculated on a monthly basis and the employer pays salaries at the end of each month, then the contribution period is from the first day of a month to the last day of the same month.

Cumulative Performance

The cumulative performance is the gain or loss generated from an investment fund to date over a specified period of time. The total return over a period of time expressed as a percentage of the change in the value of their investment divided by the initial investment amount. For example, if you have invested HK$50,000 on 1 Jan 2005 and the investment reaches a value of HK65,000 on 30 June 2008. The cumulative return on your investment over this 3½ year period is therefore 30% ($6,500-$5,000.)/$5,000).

Cumulative Return

See “Cumulative Performance”

Custodian

The company or individual that has custody of the assets of a retirement scheme. Often, the custodian is the same company or individual as the trustee. See also “Trustee”.

D

Defined Benefit

A retirement plan that promises to pay a certain amount, usually based on the number of years of service and on the final salary before retirement. Employers generally bear all investment risks.

Defined Contribution

A retirement plan offering a benefit that depends on the total contributions made by the employer and the employee, and on the investment returns earned by those contributions. Employees generally bear the investment risk.

Dollar Cost Averaging

Investing equal amounts of money at regular intervals over time. This technique ensures that an investor buys fewer shares when prices are high and more shares when prices are low. Historically, this has proven to reduce the overall cost of the investment.

E

Eligible Employee

See ‘Member’.

Exempt Person

Any employee of a company who earns less than the monthly minimum threshold of HK$5,000 at which MPFcontribution become mandatory. Specific examples of exempt persons include:

• Domestic helpers
• Self-employed licensed hawkers
• People covered by statutory pension/provident fund schemes (e.g. civil servants and subsidised or grant school teachers)
• Members of -occupational retirement schemes which have been granted MPF exemption certificates
• Overseas nationals who are employed in Hong Kong for periods of less than 13 months, or who are covered by overseas retirement schemes
• Employees of the European Union Office of the European Commission in Hong Kong

I

Industry Scheme

Industry schemes are specially-designed catering and construction industry-specific schemes that make MPF participation more convenient for employers and casual employees in these sectors. All casual employees who regularly work for an employer in either the catering or construction industries on a day-to-day basis, or for a fixed period of less than 60 days, are eligible to join such schemes. Employers in these industries are thus required to enroll their casual employees in an MPF regardless of the length of the employment period.

Inflation Risk

The risk that an investment's return may not be able to keep pace of inflation. An investment strategy which is too conservative may suffer increased risk because the investment options may grow below the rate of inflation, resulting in a lose of purchasing power.

Investment Manager

The Investment Manager is responsible for a retirement scheme managing the scheme’s assets to a given set of objectives. For MPF, the Investment Manager must be a company incorporated in Hong Kong, must be independent of the trustee and custodian, and must satisfy certain SFC requirements regarding registration, minimum share capital and assets.

Investment Mandate

Allows members of retirement schemes e.g. MPF or eligible ORSO scheme members to indicate investment portfolios in which their contributions should be invested. Members are normally free to adjust or rebalance their existing fund/portfolio balances at any time.

Investment Risk

The risk that the actual return on an investment may be lower than expected. Such risk also covers the possibility of an investment losing market value, or becoming reduced in value as a result of diversification.

L

Life Cycle Funds

Such funds are normally diversified mutual funds which are designed to match MPF members’ risk appetite levels at every different stage of their lives. The lifecycle range usually contain funds from conservative to aggressive while it shares the common aim of first growing and then preserving principal. They can be made up of any mixture of stocks, bonds or cash.

Long Service Payment

As required under the Employment Ordinance, an employer should pay long service payment when an employee who has been employed under a continuous contract for not less than 5 years:

1. is dismissed by reason other than serious misconduct or redundancy;
2. is certified by a registered medical practitioner as permanently unfit for the present job and he resigns;
3. is aged 65 or above and he resigns; or
4. dies in service.

Relevant employer can offset the long service payment as required under the Employment Ordinance with the accrued benefits derived from the contribution the employer has made to the employee in the MPF scheme.

M

Mandatory Contribution

Mandatory Contributions for both the employer and an employee are equal to 5% of the employee's "relevant income" up to HK$30,000 per month but in respect of employees earning less than HK$7,100 per month the employee's mandatory contribution is nil.

Mandatory Provident Fund (MPF)

A compulsory retirement plan introduced by the Hong Kong SAR Government in December 2000 and aimed at providing the Territory’s workers with retirement protection. MPFA: Mandatory Provident Fund Schemes Authority. The regulatory authority established to control the operation of the MPF system in Hong Kong.

Master Trust Scheme

A registered MPF scheme open to employees of any employer, self-employed person and person transferring accrued benefits from other schemes. In pooling the contributions and the investment earnings of all participants, Master Trust Schemes enjoy economies of scale.

Member

A member of a Master Trust being, (a) a self-employed person who participates in the Master Trust or (b) an employee of a participating employer who applies for and is granted membership of the Master Trust or (c) any other eligible person who is granted membership of the Master Trust.

Member Choices

A feature in a defined contribution retirement scheme where members or employees have the ability to choose investment funds from a range of investment options.

MPF Ordinance

The Mandatory Provident Fund Schemes Ordinance of Hong Kong which reference shall be extended to include the Mandatory Provident Fund Schemes (General) Regulation, the guidelines issued from time to time by the Authority, the Code on MPF Investment Funds issued by the Authority and the SFC Code on MPF Products issued by the Securities and Futures Commission.

MPFA

Mandatory Provident Fund Schemes Authority. The regulatory authority established to control the operation of the MPF system in Hong Kong.

MPF-exempted ORSO Scheme

An Occupational Retirement Scheme Ordinance (ORSO) scheme in which participating companies and their eligible employees are exempted under MPF requirements. Members of an MPF Exempted ORSO Scheme may be exempt from making MPF contributions to an MPF scheme.

O

Offering Document

A legal document outlining the inclusions and requirement of an MPF or ORSO scheme. Such documents must explain the offer, including the terms, issuer, objectives, historical financial statements, and other information that could help an individual decide whether the particular investment is appropriate for him/her. Also sometimes referred to as a Memorandum.

ORSO Scheme

ORSO (Occupational Retirement Scheme Ordinance) schemes are voluntary retirement plans established by employers as part of their employee benefit programme.

P

Payment of Benefits

All benefits accrued from mandatory contributions are normally preserved until an eligible employee contributing to an MPF or ORSO scheme reaches the retirement age of 65. There are circumstances under which benefits can be paid under MPF scheme:

• Early retirement at age 60
• Permanent departure from Hong Kong
• Total physical incapacitation and inability to work
• Death in which case the benefits the eligible employee has accrued under his/her MPF scheme will be included as part of his/her estate and can be claimed by his/her beneficiaries
• The eligible employee has a small balance in his/her account of less than HK$5,000,or has made no contributions made to the MPF or ORSO scheme for at least 12 months, and has stated that he/she will not become employed or self-employed within the foreseeable future

For ORSO Scheme: If you joined the scheme on or before 1 Dec 2000, you may choose to cash out your benefits. If you joined the scheme after 1 Dec 2000, you need to transfer a minimum MPF benefit to an MPF scheme. For the amount in excess of the minimum MPF benefits, you may choose to transfer to an MPF scheme with the minimum benefits, cash out, or a combination of the two options.

Preserved Account

An individual MPF or ORSO account held in an eligible employee’s name to preserve his/her retirement benefits until the normal retirement age of 65.

Preserved Member

Any member of a Master Trust may continue as a Preserved Member upon cessation of his employment/self-employment. Any person who wishes to transfer his accrued benefits from another MPF Scheme can also join as a Preserved Member.

R

Referent

An object which is referred to as a reference.

Regular Employee

A regular employee refers to any full-time and part-time worker who is aged 18 to aged below 65 employed under an employment contract for a continuous period of not less than 60 days.

Relevant Employee

A relevant employee means an employee aged 18 to aged below 65. A relevant employee may be a regular employee or a casual employee.

Relevant Income

In the case of a relevant employee, any wages, salary, leave pay, fee, commission, bonus, gratuity, perquisite or allowance (other than a housing allowance or other housing benefit), expressed in monetary terms, paid or payable by an employer (directly or indirectly) to that relevant employee in consideration of his employment under that contract, but does not include severance payments or long service payments under the Employment Ordinance (Cap. 57); In the case of self-employed person the calculation of relevant income is basically linked to his/her assessable profits that are calculated in accordance with the Inland Revenue Ordinance.

Retirement Age

In relation to a relevant employee or self-employed person, means 65 years of age or, if the regulations prescribe an earlier age, that earlier age.

S

Securities and Futures Commission (SFC)

An independent non-governmental statutory body outside the civil service which is responsible for regulating all securities and futures markets in Hong Kong.

Self-employed Person

A self-employed person is a person whose income is derived from the production of goods or services in Hong Kong, or from trading in goods or services in or from Hong Kong. To put it simply, a self-employed person is one that works for himself or herself and is not employed as an employee.

If you are a sole proprietor or partner of a partnership of a business, you will be regarded as a self-employed person covered by the MPF System.

Severance Payment

As required under the Employment Ordinance, an employer should pay severance payment when an employee, who has been employed under a continuous contract for not less than 24 months, is dismissed by reason of redundancy or is laid off.

Relevant employer can offset the severance payment with the accrued benefits derived from the contribution the employer has made to the employee in the MPF scheme.

Short-term Instruments

An asset class which is a low-risk investments, include cash, notes and other money market instruments that offer price stability. Short-term instruments in general provide lower returns and lower risk over time when compared with equities and bonds.

Switching

The transfer of investment from one fund to another fund within the same MPF scheme.

T

Total Incapacity

In relation to a scheme member, means permanent unfitness to perform the kind of work that the member was last performing before becoming incapacitated.

Trust Deed

The trust deed dated 31 January 2000 establishing the Master Trust.

Trustee

A trustee is a person or company, acting separately from the employer, who holds assets in the trust for the beneficiaries of the scheme. Trustees are responsible for ensuring that the pension scheme is run properly and that members' benefits are secure.

U

Unit

One undivided share in the Constituent Fund to which the class of Units relates. A fraction of a unit shall represent the corresponding fraction of an undivided share in the relevant Constituent Fund.

V

Vesting

Vesting means how much of the employer’s accumulated contributions and investment return belong to employee as retirement benefits.

For MPF: Under MPF, the employer's mandatory contributions must be 100% vested from the beginning of employment. However, for employer’s voluntary contributions, the employee may only receive a percentage of the benefit due from their employer's contributions, depending on the vesting scale.

For ORSO: A common feature of many ORSO schemes. When an employer makes contributions to a scheme, the benefits which are payable in respect of those contributions will increase as the employee's length of service increases. A common "vesting scale" is for the employee to receive 10% of the benefits from an employer's contributions for each year of service.

Voluntary Contribution

Contributions made by employers, employees and self-employed persons other than Mandatory Contributions. Voluntary contributions made by employers may be subject to scheme rules set by the participation employers.

W

Withdrawal of MPF Benefits

Withdrawing from a retirement scheme is not usually available until the member leaves the scheme. Even so, MPF members may not withdraw their mandatory contributions until they reach the normal retirement age of 65 or if they meet certain specific requirements.

• Early retirement at the age 60
• Permanent departure from Hong Kong
• Total physical incapacitation and inability to work
• Death in which case the benefits the eligible employee has accrued under his/her MPF or ORSO scheme will be included as part of his/her estate and can be claimed by his/her Beneficiaries
• The eligible employee has a small balance in his/her account of less than HK$5,000,or has made no contributions made to the MPF or ORSO scheme for at least 12 months, and has stated that he/she will not become employed or self-employed within the foreseeable future.

ORSO members on leaving their scheme may be able to withdraw the balance on top of their Minimum MPF Benefit.