Employers fight move to abolish MPF offset provision

PUBLISHED : Monday, 17 March, 2014, 2:27am
UPDATED : Monday, 17 March, 2014, 2:51am

Employers are lobbying forcefully against the call by some lawmakers to abolish the offset provision in the Mandatory Provident Fund pension scheme which has saved companies more than HK$20 billion in the past 13 years, with critics of the offset saying it does not benefit ordinary employees.

The proposal is being debated in the Legislative Council tomorrow.

Democratic Party financial affairs spokesman Sin Chung-kai told the South China Morning Post his party strongly supported a law change before 2017 to abolish the offset to improve retirement protection for workers.

"The MPF is meant for retirement protection of the 2.4 million employees covered by the scheme. The offset system has caused employees to receive less, undermining the purpose of setting up the MPF," Sin said. "Calling for a law change would be an uphill battle but we have to start this battle soon as we have an ageing population."

He also said he hoped to see the government submit a bill this year to end the offset.

A government source told the Post that this was "the right time" to start a discussion but there was no guarantee of a quick change.

The mechanism allows employers to use their portion of contributions to the MPF to offset the severance or long-service fee due an employee.

Under the law, a company that fires a worker with more than five years of service must pay a long-service fee equal to the number of years of service multiplied by two-thirds of the staff's monthly income up to HK$15,000 for each year, or a maximum of HK$390,000.

A severance fee is calculated the same way but covers staff who have worked for at least two years and is paid if the company closes down or if the headcount will not be replaced.

In developed countries such as the US, the contributions by a company to a pension scheme are separate from the severance package of an employee.

The Hong Kong General Chamber of Commerce hit back at the proposal, urging the government to deal very cautiously with calls to abolish the MPF offset mechanism.

Between July 2001 and June last year, employers used HK$20.7 billion from MPF contributions to offset severance and long-service payments. Since 2009, the amount has topped HK$2 billion annually.

"This clearly shows abolishing the offsetting mechanism would have a huge financial impact on businesses," the chamber's chief executive Shirley Yuen said. "Given the difficult external economic environment, as well as the never ending introduction of new regulations coming into effect … many SMEs have severe cash constraints and are struggling to survive. Abolishing the offsetting mechanism will be a double blow to them."

Hong Kong has 300,000 small and medium-sized enterprises, employing about 1.2 million people - almost half of those covered by the MPF.

The chamber also said before the introduction of the MPF in 2000, the Employment Ordinance already allowed employers to use their contributions to the voluntarily set up retirement schemes to offset severance payments or long-service payments.

Chan Kin-por, the legislator for the insurance sector, said the offset was put in place as a condition for the business lawmakers to support the introduction of the MPF in 2000.

"As that was a key condition for the business sector to agree to setting up the MPF, the government would need to consult the business sector again before making any change," Chan said.

Christopher Cheung Wah-fung, a financial services sector legislator, said the government should consider lowering the offset ratio gradually.