MPF seems straightforward in principle, but is this really the case? The Defined Contribution Scheme (Mandatory Provident Fund scheme) really is such an easy principle; you pay money into your own little account every month, it is invested and grows until you retire. It operates just like a bank account, doesn't it? In fact, it should be easier, as you can only take money out at the end. So why is something so simple in concept, so tricky to administer in an accurate, timely and cost effective manner? Well, I have often heard provident fund administration likened to that of a bank account, and in principle they are indeed very similar. But as is so often the case, the devil is in the detail, and the Mandatory Provident Fund provides much detail for us as trustees to get our teeth into. That 'devil' takes the form of multiple customers (sales staff, employers, employees), inadequate or non-existent employer payroll systems, miscalculations of contributions, late or non-payment of contributions, multiple unit-linked investment funds with regular switching capability, vesting scales for voluntary contributions, legislative reporting requirements, and the processing capacity issues for those providers of MPF services who prove to be successful in the current melee of sales activity. For an experienced and competent provider, this should all be 'par for the course'. However, the MPF legislation provides the industry with a few little extras. There are some questions and observations currently without answer. For example, Severance Payment; at BOCI- Prudential we have close working relationships with many thousands of employers. One persistent question comes from those who see contradictions with the severance payment rules in MPF. Under the MPF regulations it is the employee who has control of the investment media for all contributions paid on his/her behalf, including the employer's. However, an employer can offset part or all of a severance payment to an employee with the employer's mandatory contribution paid on behalf of that em ployee. This right of access to the employer mandatory contribution fund can leave employers feeling they should have at least some say in the investment of these contributions, as if unwisely managed, it is the employer who could be left covering the cost. Payroll Cycles: under MPF, the employer is required to calculate contributions according to relevant income during the contribution period. The MPF provider is required by the Mandatory Provident Funds Authority to check this calculation and must also monitor timely remittance (contributions must be with the provider within seven working days after the last day of the relevant contribution period). Given regular calendar monthly payroll cycles, the task of the provider is not too onerous. However, the employer payroll cycles may be monthly, weekly, daily or of no particular frequency. This makes the monitoring of contribution receipt difficult, or even impossible. Given the future demographics of the Hong Kong population, the concept of every employer providing retirement support for its employees makes lots of sense. Indeed, privately funded retirement provision is economically essential. To keep costs and therefore charges down, this product must clearly blend the perceived complexity of something like stock market investment, with some very simple, streamlined and automated processes. This is in everyone's best interests. However, there are some barriers to the effective running of some schemes where one 'company' could have to take out several MPF schemes. How can this happen? It will happen when self-employed or partnerships also employ staff, as some will. Let's use an example of a partnership with two partners who employ and pay a salary to three staff. The partners have to set up MPF schemes for themselves. Not only this, but a separate scheme will have to be set up for the employees. Thus several MPF schemes, with all the attaching overheads, will need to be put into force. So what is the message here? The message is two-fold, but simple: firstly, there are a number of unsolved issues contained within the MPF legislation, and some patience will need to be demonstrated by those affected as the industry works together with the authorities and employers to iron these out. Secondly, it is very important that employers choose an MPF provider with great care. The provider should be able to talk competently through these issues and others without glossing over; if they cannot, then maybe they have no answers or, even worse, maybe they haven't yet seen the questions? Stanley Yip is chief executive officer of BOCI-Prudential Asset Management. He has more than 20 years experience in the auditing, accounting and trust administration industry and was a member of the Mandatory Provident Fund panel of specialists, providing advice and recommendations to the MPFA in setting up the legal framework for the MPF scheme. Mr Yip is also a member of the MPF Working Group of the Open University of Hong Kong.