The Occupational Retirement Schemes (Amendment) Bill 2019 (“Amendment Bill”) was published in the Gazette on 4 April 2019. The Amendment Bill overhauls the regulatory regime of the Occupational Retirement Schemes Ordinance1 (ORSO) and prevents misuse of the occupational retirement schemes. There is no definite timeline as to the implementation of the Amendment Bill (the “Effective Date”). However, the Amendment Bill will be introduced into the Legislative Council for First Reading on 17 April 2019.
Key proposed changes to the current ORSO are as follows:
1. New concept of “eligible persons” and interpretation of
Concept of “eligible persons”
The Amendment Bill introduces the new employment-based terminology of “eligible persons”, and amends the existing definition of an “occupational retirement scheme” by expressly inserting this employment-based criterion.
Under the Amendment Bill, an “eligible person” in relation to an occupational retirement scheme shares similar definition with the existing definition of “member” under the ORSO (which will be repealed on the Effective Date). Both essentially mean an individual who is entitled or will be entitled to benefits under the scheme by virtue of his/her past/present employment by the relevant employer of the scheme.2 However, because both “eligible person” and “member” also cover people who are not participants to an occupational retirement scheme, i.e. individuals who have an interest in the estate of a deceased individual who qualified as an “eligible person” or who is a deceased “member”, we are of the view that the use of the term “eligible person” rather than “member” may help avoid confusion.
The Amendment Bill introduces criminal liability on the part of an employer of an occupational retirement scheme registered as an ORSO scheme after the Effective Date should its membership be open to persons other than “eligible persons”.3 The directors and officers of such an offending employer will also be criminally liable if the employer committed the offence with their consent or the offence is attributable to their neglect.4 In addition, in those cases, while the scheme will continue to be a registered ORSO scheme, any term allowing membership to be open to persons other than “eligible persons” will be void and unenforceable.5
The Amendment Bill further prevents an employer from arguing that a scheme that is open to non-“eligible persons” is not strictly an “occupational retirement scheme” and, consequently, that ORSO would be inapplicable to both the employer and the scheme. To that end, the Amendment Bill provides that where a scheme is held out as an occupational retirement scheme and would be an occupational retirement scheme but for the fact that:
the requirements/duties imposed under ORSO on an employer apply to the person described as an employer in the terms of the scheme and any function that may be performed under ORSO in relation to an occupational retirement scheme may be performed in relation to such scheme.6
Interpretation of “employment”
The Amendment Bill provides statutory guidance for the interpretation of “employment” in the context of occupational retirement schemes.7 It clarifies that, for ORSO purposes, where a person provides service on a full-time basis to a business or other organisation in Hong Kong for more than 4 years in a way and subject to a degree of control that the person may reasonably be regarded as an integral part of the business or organisation:
The introduction of the interpretation of “employment” removes the ambiguity of the existing section 3(5) of ORSO (which will be repealed on the Effective Date). The purpose of section 3(5) is confined in its application to existing section 3(1) (which is a restrictive provision essentially prohibiting employers from operating or participating in an occupational retirement scheme unless it is registered or exempted under ORSO). Also, while section 3(5) specifies that the proprietor of the organisation would be regarded as an employer, it does not clarify the status of the persons providing full-time services for more than 4 years.9
2. Employers’ obligations
The Amendment Bill imposes a requirement on employers to submit to the Mandatory Provident Fund Schemes Authority (ORSO Registrar) (the “Registrar”) an annual written statement as to whether at all times during the financial year the scheme, by its terms, limited membership to eligible persons and all members of the scheme are eligible persons.10
3. Trustees’ duties
The Amendment Bill imposes new duties on the trustees of a registered ORSO scheme, such as the:
Trustees should be familiar with the above duties which are found in common law and equity (i.e. common law duty of care and fiduciary duty). In addition, such duties track the duties that already apply to an MPF exempted ORSO scheme. Notably, the above duties only apply to trustees of registered ORSO schemes and not the insurers of the registered ORSO schemes in the form of insurance policies.
4. Expanded powers of the Registrar
The Amendment Bill provides the Registrar additional powers, including:
Failure to comply with an investigation request without reasonable excuse,14 or with intent to defraud, is a criminal offence.15 In addition, it is a criminal offence for a person to give false or misleading information in purported compliance with an investigation requirement, knowing or being reckless as to whether such information is false or misleading in a material respect,16 or with the intent to defraud.17 An officer or employee of a company who, with an intent to defraud, causes or allows the company to commit the above offence(s) will be equally criminally liable.18
5. “Reportable event”
The Amendment Bill sets out a list of “reportable events”, the occurrence of which on or after the Effective Date requires the relevant employer or administrator of a registered scheme to:
Reportable events, for the purposes of ORSO are:20
6. Transfer of benefits
The Amendment Bill expressly prohibits transfer-in payments to registered or exempted schemes unless either of the following circumstances applies:23
The proposed prohibition could help prevent persons from taking advantage of the relatively relaxed investment restrictions under ORSO,25 limiting the ability of such persons to transfer assets that are unrelated to participation in any provident fund scheme into an occupational retirement scheme and claim tax benefits.
7. Exempted ORSO schemes
The Amendment Bill abolishes the granting of exemption certificates in respect of occupational retirement schemes from the Effective Date unless the scheme is an offshore scheme approved by a regulatory authority outside Hong Kong performing functions generally similar to those of the ORSO Registrar. Under the existing regime, exempted schemes are susceptible to misuse as general investment vehicles given the low threshold for qualifying for the exempted scheme status. Coupled with the enhanced powers of the Registrar to withdraw exemptions, this proposal strikes at the heart of the issue of misuse of ORSO schemes.
8. What’s next?
The proposed overhaul of the regime plugs the loophole in the ORSO environment that has allowed abuses of the ORSO schemes.
Given the magnitude of changes and the ramifications for failure to comply, in order to ensure continued compliance with ORSO, employers and service providers operating ORSO schemes should revisit the schemes’ operations and terms to see whether changes need to be made as soon as possible.