THE passage through the approval process of Hongkong's first piece of legislation on retirement schemes, for enactment this summer, went by with something of a whimper after being at least six years in the making. For an individual beneficiary the enactment of the legislation will have a number of pluses, but it is up to individuals to ensure their own circumstances are properly looked after. Most employees do not know the first thing about their own schemes, a situation which should be remedied immediately by asking for a copy of the scheme details from their employer's personnel office. The legislation will demand minimum standards for operation of the schemes with professional certification to ensure standards are kept. This legislation is separate from the proposals that will demand that all corporate entities in Hongkong establish a scheme. The current legislation covers only existing schemes. Neither piece of legislation produces a pension, as understood in the West - which is an arrangement by which certain types and levels of contributions and benefits enjoy tax relief from government authorities. In Hongkong, while there is a facility for obtaining Inland Revenue approval, tax arrangements are nothing like those associated with pensions in the West. Furthermore, pension schemes in the West generally pay out an income alongside a lump sum, to last the recipient until death. In Hongkong, retirement schemes tend to pay a lump sum, leaving the beneficiary to make his or her own arrangements. There are two types of retirement scheme in Hongkong, the most common being the defined-contribution system involving set contributions by the beneficiary and the employer. Defined-benefit schemes, which are less common, set out to pay the employee a pre-determined level of benefits at the time of retirement - calculated on the number of years of service and final salary. Lump-sum payments from either scheme, with Inland Revenue approval, are tax-free in Hongkong. Any income paid by a retirement scheme is automatically liable to tax. To mitigate this tax liability on income from a retirement or any other income-paying investment, the beneficiary should ensure that the scheme is offshore. This type of tax mitigation is not straightforward, and professional advice is needed before making any firm commitments. Issues surrounding the question of scheme trusteeship and domicile also centre on whether or not a scheme is onshore or offshore. According to most actuarial consultancy surveys, most schemes in Hongkong are onshore and rely on an alternate trustee to operate the scheme if the onshore trustee is incapacitated. As 1997 approaches, the question of whether a scheme should be onshore or offshore has grown in prominence. Most professionals in trusteeship recommend that schemes be established offshore because in a time of emergency, the clauses of an onshore scheme allowing the appointment of an alternate trustee have never been fully tested. Given the uncertainty surrounding these flee clauses, onshore schemes should be avoided in favour of an offshore arrangement, protecting the scheme's offshore assets and some of the benefit due employees. Under the legislation coming in this summer, individuals will be entitled to a minimum amount of information on their schemes. Where there are more than 20 people employed by the company, this entitlement can be exercised through the creation of an employee consultative committee. Actuaries William Mercer say in a bulletin to clients: ''The purpose of this committee is largely to receive information on the operation of the scheme, including the accounts, actuarial certificates, details of scheme provisions, copies of documents anddetails of any restricted investments.'' Where the company has no committee, this type of information will have to be made available to individual employees. With all of this in mind, it would seem sensible to check that the actual benefits expected from investment arrangements and retirement schemes are fully protected should things not go according to plan in the future.
