The Mandatory Provident Fund (MPF) is a compulsory pension fund designed by the Hong Kong government as a major protection scheme for the aged and retired residents. Most employees and their employers are required to contribute monthly. A 2012 study by the Consumer Council shows that almost half of the MPF funds have posted losses in each of the past five years.
Bosses must stop dipping into workers' retirement funds
Everyone knows about the Mandatory Provident Fund's shortcomings, yet no one seems to have a clear idea how to reform it. Among its most glaring flaws, at least if you are an employee and not a boss, is the so-called offsetting mechanism.
This enables employers to use their contributions to the pension scheme to fund severance and long-service payments for departing employees, thereby depleting their retirement savings. There was talk that Chief Executive Leung Chun-ying would reform or even end the practice in his latest policy address. It turns out he had nothing to say on the subject, to the disappointment of unionists and labour-friendly lawmakers.
One of Leung's election promises had been to reduce the amounts bosses could deduct from MPF accounts to make such payments.
Executive Council member Fanny Law Fan Chiu-fun has defended Leung, saying the government is now looking into the issue. It is deeply unfair to allow bosses to dip into these accounts, on top of the already expensive fees and charges MFP fund managers levy on their captive clients. Some pro-business associations have argued that to ban the offsetting practice would increase the cost of business and encourage workers to abuse the system. That is evidently self-serving and is analogous to saying failure to keep wages low would eat into profit margins.
But the reality is that there is simply too much resistance from the business community to end the practice anytime soon. Leung says we need to have a consensus between workers and bosses but that is unlikely to be achieved any time soon, either. Instead, the government and the Mandatory Provident Fund Schemes Authority should start placing limits on how much bosses can take out of an employee's account. That will make it more difficult for the business community to object, and offer better protection for workers when they retire. The ultimate goal should be to phase out the practice entirely.