THE proposed mandatory provident fund (MPF) scheme will cost about $1.63 billion to administer during its first three years, according to official estimates. Over eight years, the total cost of the scheme will rise to about $363 billion. This excludes the $300 million the Government will contribute to 'kick-start' the compensation scheme to cover losses suffered arising from fraud or negligence. Last week the Government unveiled proposals for a pension scheme and immediately expressed reservations about plans for the treatment of existing company pension schemes. The controversy surrounding the fund is likely to increase this week as pension experts and trustees of existing company pension schemes review the fund's details. The report, prepared jointly by Hewitt Associates and GML Consulting, recommends a defined contribution plan that will cover all permanent employees over the age of 18. The report suggests a mandatory contribution by employees and employers of five per cent of the employee's monthly income, up to a maximum income of $20,000, with a ceiling of $1,000 each. Other recommendations include portability of vested benefits and for underlying assets to be privately managed. According to the report, the annual bill for staffing the proposed Mandatory Provident Fund Authority, a body set up to administer the fund, will be about $235 million 'when the authority is in a steady state'. The ongoing annual cost of renting offices, setting up systems and the use of consultants will add another $35 million. During the early period of the scheme, additional staff to educate the public about their rights and liabilities under the scheme and inspectors to ensure compliance will increase the costs by $275 million. The cost of setting up an office and developing systems during the first two years has been assessed at $350 million. The Government said it would adopt a user-pays system to meet the costs of running the pension scheme. The report recommends: 'This argument is tenable in that, ultimately, taxpayers pay for services whether directly or via taxation and charges levied by the Government. It has the additional attraction that it makes those not now in the tax net pay for a service they will be receiving.' The consultancy recommends the Government meets the initial costs of establishing the authority by injecting initial capital, making loans at low or no interest. It states: 'The authority could then recover from the MPF schemes its other costs for supervising the registration and compliance of the schemes and authorising the trustees. The costs of managing the levy fund should be met from a charge on the investment returns of the levy fund.' According to scheme estimates, the fund will have accumulated assets under management of about $29 billion at the outset. This will grow, assuming five per cent compound growth, to about $102 billion in year three.