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A new formula has been introduced to determine the “prescribed savings rate” (PSR) used as a benchmark to decide whether Mandatory Provident Fund Schemes trustees can collect fees and charges on capital preservation funds (CP Funds) for a particular month. The new formula takes effect following the deregulation of savings deposit rates in July 2001.

A Mandatory Provident Fund Schemes Authority (MPFA) spokesman said that from July 2001, the PSR will be the simple average of the interest rates offered by the three note-issuing banks in Hong Kong on Hong Kong dollar savings account with deposit amount of $120,000. The PSR is 2.2500% for the first two days of July and 1.9167% for the rest of the month.

No fees or charges can be deducted from the CP Funds in any month unless it achieves a net return for that month of over and above the return calculated based on the PSRs prescribed by the MPFA. Each month, the PSRs for the previous month are announced in an English-language and a Chinese-language newspaper, as well as the MPFA website.

Relevant guidelines on the PSR calculation have been amended in June after consulting the MPF industry.

The spokesman said the reason for setting the level at $120,000 was that under the existing contributing rate, it would take some time for scheme members to accrue MPF benefits up to $120,000. This is hence a reasonable amount for the short and medium term, and would obviate the need for frequent changes. This calculation is also simple, direct and easily comprehensible to the public and the MPF industry.

It is a statutory requirement to provide for a CP Funds in every MPF scheme.

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1 August 2001