White Collar

Scrap the MPF offset, which favours bosses unfairly

Offset mechanism, which favours bosses over their staff, is a source of criticism of the scheme

PUBLISHED : Monday, 10 March, 2014, 2:13pm
UPDATED : Monday, 10 March, 2014, 11:40pm

On March 18, Hong Kong's lawmakers will debate the controversial mechanism under which a firm can use the employer's portion of contributions to the Mandatory Provident Fund to offset the severance or long-service fee when a worker leaves.

This is a good start towards scrapping or at least changing such an unfair system.

But one cannot hope too much for any immediate change, owing to strong opposition from business.

The offset mechanism is a prime example of how the MPF was set up to favour bosses over their staff. This is why so many of the 2.4 million Hong Kong employees covered by the MPF have little love for the scheme.

Under the city's labour law, when a firm fires a worker with more than five years' service, the employer 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. The total payment is capped at HK$390,000.

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

Back in the early 1990s, when the Legislative Council debated the law to introduce the MPF, the business sector supported the Liberal Party in standing firm that it would vote for the new law only if the offset was in place. They won. The rest is history, and the offset ranks together with high management fees and poor performance as being the most loudly heard criticisms of the MPF. All employers and employees pay up to HK$2,500 a month combined into the scheme.

Mandatory Provident Fund Schemes Authority figures showed employers took HK$20.71 billion out of the MPF to pay long-service and severance fees since the launch of the scheme until June 2013.

This represents 37 per cent of all withdrawals, more than the 30 per cent taken out by people leaving Hong Kong and the 28 per cent withdrawn by those taking early retirement.

Chief Executive Leung Chun-ying said in his election manifesto in 2012 that he would seek to lower the proportion of withdrawals for the offset, but he has not followed up since being appointed to the city's top post. If Leung and other government officials care about the retirement of employees, especially low income ones, they should put a stop to the offset.

Bosses are also allowed to choose the MPF providers for their employees. They often turn out to be the firms' bankers.

If workers are unhappy with the choice, they have only one opportunity a year to shift their own contribution to a provider they prefer. Few do so because the employer's contribution remains at the old provider in any case. This is a forced marriage.

The government should change this and allow employees to have full control of their MPF accounts, since at the end of the day, the MPF is for the workers' retirement.